<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1998
REGISTRATION NO. 333-48937
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MALAN REALTY INVESTORS, INC.
(Exact Name of Registrant as Specified in its Articles of Incorporation)
------------------------
MICHIGAN
(State or Other Jurisdiction of
Incorporation or Organization)
38-1841410
(I.R.S. Employer Identification No.)
------------------------
30200 TELEGRAPH ROAD
SUITE 105
BIRMINGHAM, MICHIGAN 48025-4503
(248) 644-7110
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------
ANTHONY S. GRAMER
MALAN REALTY INVESTORS, INC.
30200 TELEGRAPH ROAD
SUITE 105
BIRMINGHAM, MICHIGAN 48025-4503
(248) 644-7110
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
Copies to:
KENNETH H. GOLD, ESQ.
MIRO WEINER & KRAMER
500 N. WOODWARD AVENUE
SUITE 100
BLOOMFIELD HILLS, MICHIGAN 48304
DONALD J. KUNZ, ESQ.
HONIGMAN MILLER SCHWARTZ AND COHN
2290 FIRST NATIONAL BUILDING
DETROIT, MICHIGAN 48226
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JUNE 1, 1998
PROSPECTUS
[MALAN REALTY LOGO]
1,500,000 SHARES
------------------
MALAN REALTY INVESTORS, INC.
COMMON STOCK
Malan Realty Investors, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust (a "REIT") that owns, acquires,
develops, redevelops, manages and operates properties which are leased primarily
to national and regional retail companies. The Company owns a portfolio of 66
properties (the "Properties") located in 10 states and containing an aggregate
of approximately 6.1 million square feet of gross leasable area ("GLA"). As of
December 31, 1997, the portfolio was 93.3% leased.
All of the 1,500,000 Shares of Common Stock, $.01 par value per share (the
"Shares"), offered by this Prospectus (the "Offering") are being sold by the
Company. Upon the closing of the Offering, approximately 9.1% of the outstanding
shares of Common Stock of the Company (the "Common Stock") will be beneficially
owned by the Company's executive officers and directors. To ensure that the
Company remains a REIT for Federal income tax purposes, among other reasons, the
Company's Articles of Incorporation ("Articles"), in general, prevent a
shareholder from owning more than 9.9% of the Common Stock. See "Restrictions on
Transfer."
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "MAL". On May 29, 1998 the last reported sale price of the
Common Stock on the NYSE was $17.81 per share. The Company has paid a regular
quarterly distribution on the Common Stock of $.425 since the consummation of
its initial public offering in June 1994 (the "IPO"). See "Price Range of Common
Stock and Distribution History."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE SHARES.
THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
- ---------------------------------------------------------------------------------------------------------------------------
Total(3)........................................ $ $ $
===========================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the underwriters (the "Underwriters")
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of approximately $ payable by
the Company.
(3) The Company has granted the Underwriters a 30 day option to purchase up to
225,000 additional Shares on the same terms and conditions as the Shares
offered hereby solely to cover over-allotments, if any. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------
The Shares are offered severally by the Underwriters, as specified herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that the Shares will be ready for
delivery through the facilities of The Depository Trust Company in New York, New
York, on or about , 1998 against payment therefor in immediately
available funds.
------------------
RONEY CAPITAL MARKETS FIRST OF MICHIGAN CORPORATION
A DIVISION FIRST CHICAGO CAPITAL MARKETS, INC.
The date of this Prospectus is , 1998
<PAGE> 3
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SHARES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF
OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................... 5
The Company............................................... 5
Objectives and Strategies................................. 7
The Portfolio............................................. 8
Tax Status................................................ 9
The Offering.............................................. 10
Summary Selected Financial Data........................... 11
RISK FACTORS................................................ 13
Reliance Upon Major Tenants............................... 13
Acquisition, Development and Redevelopment Risks.......... 13
Risks of High Distribution Payout Percentage.............. 13
Real Estate Investment Considerations..................... 14
Adverse Effect of Increase in Market Interest Rates on
Common Stock Price and Financial Position.............. 15
Inability to Comply with REIT Distribution Requirements... 15
Dependence on Key Personnel............................... 16
No Limitation on the Incurrence of Debt................... 16
Risks Associated with Borrowing, Including Foreclosure.... 16
Ability to Change Investment and Financing Policies
without Shareholder Approval........................... 17
Failure to Qualify as a REIT.............................. 17
Environmental Matters..................................... 17
Limitations on Ownership and Change in Control............ 18
Future Dilution from Convertible Securities, Options,
Warrants and Future Share Offerings.................... 19
Financing of Future Developments or Acquisitions.......... 19
Risk of Reduced Funds Available for Distribution Upon the
Exercise of Certain Purchase Options................... 19
Treatment of Assets of the Company as Plan Assets under
ERISA.................................................. 19
Risks Involved in Development Activities Through
Partnerships and Joint Ventures........................ 20
USE OF PROCEEDS............................................. 21
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY........ 21
CAPITALIZATION.............................................. 22
SELECTED FINANCIAL DATA..................................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 25
Overview.................................................. 25
Results of Operations..................................... 25
Liquidity and Capital Resources........................... 28
Inflation................................................. 32
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS AND PROPERTIES..................................... 32
The Company............................................... 32
Objectives and Strategies................................. 34
Properties................................................ 35
Summary of Properties..................................... 37
Major Tenants............................................. 42
Summary of Major Tenants.................................. 43
Tenant Lease Expirations and Renewals..................... 44
Options to Purchase Granted to Certain Tenants............ 45
Rental Revenues........................................... 45
Capital Expenditures...................................... 45
Competition............................................... 45
Employees................................................. 46
Legal Proceedings......................................... 46
Insurance................................................. 46
MORTGAGE INDEBTEDNESS....................................... 47
RECENT DEVELOPMENTS......................................... 47
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES................. 49
Acquisition and Investment Policies....................... 49
Financing Policies........................................ 50
Working Capital Reserves.................................. 51
Other Operating Policies.................................. 51
MANAGEMENT.................................................. 51
Executive Officers and Directors.......................... 51
Executive Compensation.................................... 53
Stock Option Plan......................................... 53
Compensation of Directors................................. 54
PRINCIPAL SHAREHOLDERS...................................... 55
DESCRIPTION OF COMMON STOCK................................. 57
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND
BYLAWS.................................................... 58
RESTRICTIONS ON TRANSFER.................................... 59
FEDERAL INCOME TAX CONSIDERATIONS........................... 59
ERISA CONSIDERATIONS........................................ 69
UNDERWRITING................................................ 71
LEGAL MATTERS............................................... 72
EXPERTS..................................................... 72
AVAILABLE INFORMATION....................................... 72
INCORPORATION BY REFERENCE.................................. 73
GLOSSARY.................................................... 74
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
4
<PAGE> 5
[MAP]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR, AND PURCHASE, SHARES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
SAFE HARBOR STATEMENT
In addition to historical information, this Prospectus contains certain
forward-looking statements, including, but not limited to, statements regarding
the Company's future financial performance and financial condition. These
statements involve a number of risks and uncertainties. Any forward-looking
statements made by the Company herein are not guarantees of future performance,
and actual results may differ materially from those in such forward-looking
statements as a result of various factors, including but not limited to, those
referred to under "Risk Factors" herein.
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information contained in this
Prospectus assumes that the Underwriters' over-allotment option is not
exercised.
THE COMPANY
The Company is a self-administered, self-managed real estate investment
trust which owns, acquires, develops, redevelops, manages and operates
properties which are leased primarily to national and regional retail companies.
The Properties are typically located in select geographic markets with an
emphasis on small to medium-sized communities where the Properties can be
positioned among the leading centers in their respective trade areas. At
December 31, 1997, the Company had 53 properties located in 9 states, consisting
of 26 community shopping centers, 26 freestanding stores and 1 entertainment
facility and containing an aggregate of approximately 5.7 million square feet of
GLA. On February 23, 1998 the Company acquired a community shopping center in
Westland, Michigan (the "Westland Acquisition") which contains an aggregate of
approximately 85,000 square feet of GLA. In addition, on May 29, 1998, the
Company acquired twelve community shopping centers (the "Sandor Acquisition")
which contain an aggregate of approximately 328,000 square feet of GLA.
Currently, the Company's portfolio consists of 66 Properties located in 10
states consisting of 39 community shopping centers, 24 freestanding stores and 3
entertainment facilities (2 of which are under redevelopment) and contains an
aggregate of approximately 6.1 million square feet of GLA. An entertainment
facility consists of a multi-screen movie theater with stadium seating, digital
sound and the latest concepts in food concession. As of December 31, 1997, 93.3%
of GLA (95.7% excluding the Properties being redeveloped) in the portfolio was
leased and 93.7% of the Company's annualized base rent was attributable to
national and regional retailers. At December 31, 1997, Kmart Corporation
("Kmart") and Wal-Mart Corporation ("Wal-Mart") represented 35.7% and 6.6%,
respectively, of annualized base rent and leased 54.0% and 7.1%, respectively,
of the Company's GLA.
From 1966 to 1985, the Company specialized in building and managing
properties to suit for national and regional retailers who had signed long-term
leases prior to commencement of construction. The Properties were initially
owned by affiliates of the Company and subsequently by third party owners. Prior
to the IPO, the Company managed these Properties. In 1981, Anthony S. Gramer,
President and Chief Executive Officer, joined the Company and in 1986 he
acquired the Company from its original owners. The Company became a REIT in June
1994 and continued to expand the retail property business previously managed by
the Company. The Company believes that this strategy of developing properties
based on executed long-term leases primarily with national and regional retail
tenants provides the shareholders with a predictable source of income and also
provides future opportunities for development of additional properties at
attractive returns on investment, without the lease-up risks inherent in
speculative development.
The Company is one of the original developers of properties for Kmart and
ranks among the leading operators of shopping centers in the United States.
Since its inception in 1966, the Company has developed or redeveloped a total of
39 community shopping centers, 76 freestanding stores, and one regional enclosed
mall, totaling more than 14 million square feet of GLA. In connection with the
IPO, the Company acquired 45 income-producing retail properties with a GLA of
4.7 million square feet, all of which were either developed or redeveloped, and
subsequently managed, by the Company.
Recent Developments:
- In the Sandor Acquisition, the Company acquired twelve community
shopping centers located in: Indiana (3), Michigan (3), Illinois (2),
Kansas (2), Minnesota (1) and Ohio (1) for $29.5 million. These
Properties have Maurice's, Fashion Bug and Dollar Tree as major
tenants, contain a total of over 328,000 square feet of GLA and are
anchored by a Wal-Mart (each Wal-Mart store and its underlying pad are
owned and managed by an independent third party). At May 29, 1998,
94.8% of the GLA in the Sandor Acquisition was leased. In addition,
pursuant to the Sandor
5
<PAGE> 7
Acquisition purchase agreement, the Company agreed to acquire a
community shopping center located in Decatur, Illinois for $4.2
million that contains over 40,000 square feet of GLA and has Wal-Mart
and Sam's Club as anchor tenants (the stores and their underlying pads
are owned and managed by independent third parties). The acquisition
of the Decatur, Illinois property is scheduled to close in November
1998 after the seller completes a redevelopment of the property. The
acquisition of all 13 Properties under the Sandor Acquisition purchase
agreement is hereinafter referred to as the "Midwest Acquisition."
- In the Westland Acquisition, the Company acquired a community shopping
center in Westland, Michigan for $7.9 million. This center has Dick's
Sporting Goods and MedMax as its major tenants and contains over
85,000 square feet of GLA. At May 29, 1998, 100% of the GLA of the
community shopping center was leased.
Also, since the IPO, the Company has:
- Acquired the following 8 Properties:
(i) Five community shopping centers in Indiana (3), Illinois (1) and
Ohio (1) which have Wal-Mart as the major tenant and contain over
665,000 square feet of GLA;
(ii) A community shopping center in Dearborn, Michigan which has Best
Buy and Kids "R" Us, as major tenants, contains over 137,000
square feet of GLA and is also anchored by Mervyn's and Target
(which own their stores and underlying pads);
(iii) A community shopping center in Clinton Township, Michigan which
has Office Max and Sports Authority as major tenants, contains
over 135,000 square feet of GLA and is also anchored by Target
(which owns its store and underlying pad); and
(iv) A 12-plex entertainment facility in Lawrence, Kansas which is
leased to Hollywood Theaters under a sale-leaseback agreement
and contains over 42,000 square feet of GLA.
- Begun the redevelopment of two of the Company's freestanding stores,
which were previously anchored by Kmart, into entertainment facilities
which are scheduled to be completed in 1998. These facilities contain,
in the aggregate, over 117,000 square feet of GLA.
- Begun the redevelopment and expansion of an existing shopping center
anchored by Kmart in Lawrence, Kansas. The expansion will add a Kohl's
Department Store as an anchor tenant as well as other national and
regional retailers. The renovated shopping center will contain over
255,000 square feet of GLA.
- Diversified the tenant base and reduced the percentage of annualized
base rent received from Kmart to 35.7% as of December 31, 1997 from
59.6% at the IPO.
- Continued to operate the Properties at occupancy rates in excess of
93.3% with minimal tenant defaults.
The Company's three senior executives, Anthony S. Gramer -- President and
Chief Executive Officer, Michael K. Kaline -- Vice President, and Elliott J.
Broderick -- Chief Accounting Officer, have been actively involved in the
management, leasing, acquisition, development and redevelopment of shopping
centers, freestanding stores and entertainment facilities, including all of the
Properties, and collectively have over 50 years of experience in the real estate
industry.
The Company's executive offices are located at 30200 Telegraph Road, Suite
105, Birmingham, MI 48025-4503. The telephone number is (248) 644-7110.
6
<PAGE> 8
OBJECTIVES AND STRATEGIES
OBJECTIVES
The Company's primary objectives are (i) to realize steady and predictable
cash flows through the ownership of high quality properties leased primarily to
good credit quality national and regional retailers, (ii) to increase Funds From
Operations per share through the development, redevelopment or acquisition of
additional properties, (iii) to have leases with national and regional retailers
in place prior to development of any property, (iv) to develop vacant parcels
adjacent to existing Properties and (v) to structure financing arrangements that
are beneficial to the Company's long-term growth objectives. The Company
presently intends to achieve these objectives by implementing the growth,
operating and financing strategies outlined below.
GROWTH, OPERATING AND FINANCING STRATEGIES
In seeking to attain these objectives, the Company has applied and intends
to continue to apply the same strategies that have been its guiding principles
since the Company's inception. These strategies include the following:
- Developing or acquiring each property with the objective of leasing
it to good credit quality national or regional retailers and holding
it for long-term investment value.
- Developing or acquiring properties in what the Company considers to
be attractive long-term locations. Such locations typically have (i)
convenient access to transportation arteries with a traffic count
that is higher than average for the local market, (ii)
concentrations of other retail properties and (iii) demographic
characteristics which are attractive to the retail tenant which will
lease the property upon completion.
- Purchasing land and beginning development of a property upon the
execution of a lease or leases with a national or regional retailer
or retailers on terms which provide a return on estimated cost that
is attractive relative to the Company's cost of capital.
- Directing all aspects of development and redevelopment, including
design, construction, leasing and management. Property management
and leasing activities are handled directly by Company personnel.
The Company believes that this approach to development and
management enables it to operate efficiently and enhances the
ability of the Company to develop and maintain assets of high
quality which are designed, leased and maintained to maximize
long-term value.
- Developing vacant parcels that are adjacent to some of the
Properties and outlots on existing Properties to enhance the value
of the Properties as well as the cash flow of the Company.
- Locking in the Company's returns on property investments through the
use of intermediate to long-term, fixed-rate financing alternatives.
The Company believes that the relationships established by management with
national and regional retailers as well as the financing relationships
management has developed with lenders provide it with an advantage in achieving
its objectives.
7
<PAGE> 9
THE PORTFOLIO
The 66 Properties are located in 10 states and consist of 39 community
shopping centers, 26 freestanding stores and 1 entertainment facility and
contain an aggregate of approximately 6.1 million square feet of GLA. Two of the
freestanding stores are being redeveloped into entertainment facilities and one
of the community shopping centers is being redeveloped and expanded. The Company
developed 45 of the 66 Properties and all of the Properties are owned in fee or
held pursuant to long-term ground leases. At December 31, 1997, Kmart and
Wal-Mart represented 35.7% and 6.6%, respectively, of annualized base rent. The
Properties are designed to meet the needs of the surrounding local communities
and are anchored by national and regional retail tenants who offer a broad range
of discount consumer goods. As of December 31, 1997, 93.3% (95.7% excluding the
Properties under redevelopment) of the GLA of the Properties was leased.
LOCATIONS OF THE PROPERTIES(1)
<TABLE>
<CAPTION>
NUMBER GROSS PERCENT OF
OF LEASABLE AREA GLA LEASED AS OF
STATE PROPERTIES (SQ. FT.) DECEMBER 31, 1997
- ----- ---------- ------------- -----------------
<S> <C> <C> <C>
Illinois............................................... 13 1,400,743 88.9%
Kansas................................................. 12 755,360 83.0
Wisconsin.............................................. 11 1,431,312 98.2
Indiana................................................ 6 809,407 94.6
Missouri............................................... 5 519,277 98.7
Michigan............................................... 3 412,508 97.2
California............................................. 1 94,282 100.0
Maryland............................................... 1 84,180 100.0
Ohio................................................... 1 145,607 97.4
-- ---------
Total................................................ 53 5,652,676 93.3%
== =========
</TABLE>
- -------------------------
(1) The Sandor Acquisition and the Westland Acquisition occurred after December
31, 1997; thus, the effect of these acquisitions is not included in the
table. See "Recent Developments."
ANNUALIZED BASE RENT OF THE PROPERTIES(1)
The following is a breakdown of annualized base rent as of December 31,
1997 for the Properties by type of tenant:
<TABLE>
<CAPTION>
ANNUALIZED PERCENT OF TOTAL
BASE RENT AS OF ANNUALIZED BASE RENT AS OF
TYPE OF TENANT DECEMBER 31, 1997(2) DECEMBER 31, 1997
- -------------- -------------------- --------------------------
<S> <C> <C>
National............................................ $19,964,000 82.4%
Regional............................................ 2,744,000 11.3
Local............................................... 1,516,000 6.3
----------- -----
Total............................................... $24,224,000 100.0%
=========== =====
</TABLE>
- -------------------------
(1) The Sandor Acquisition and the Westland Acquisition occurred after December
31, 1997; thus, the effect of these acquisitions is not included in the
table. See "Recent Developments."
(2) "Annualized Base Rent" of the Company as of December 31, 1997 is determined
by multiplying by 12 the monthly rent as of that date, but excluding from
the monthly rent (i) percentage rents, (ii) additional rent payable by
tenants such as common area maintenance, real estate taxes and other expense
reimbursements and (iii) future contractual rent increases.
8
<PAGE> 10
MAJOR TENANTS(1)
The following table sets forth certain information with respect to the
Company's major tenants as of December 31, 1997:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER ANNUALIZED BASE RENT ANNUALIZED BASE RENT
TENANT OF LEASES AS OF DECEMBER 31, 1997(2) AS OF DECEMBER 31, 1997(2)
- ------ --------- -------------------------- --------------------------
<S> <C> <C> <C>
Kmart.................................. 33 $ 8,640,000 35.7%
Wal-Mart............................... 5 1,598,000 6.6
Toys "R" Us............................ 3 823,000 3.4
Cineplex-Odeon......................... 1 617,000 2.5
Hollywood Theater...................... 1 587,000 2.4
Best Buy............................... 1 485,000 2.0
Levitz................................. 1 433,000 1.8
Jay C. Foods........................... 2 370,000 1.5
Sports Authority....................... 1 362,000 1.5
Sportmart(3)........................... 1 356,000 1.5
1/2 Off Card Shop...................... 2 307,000 1.3
Roundy's............................... 1 289,000 1.2
-- ----------- ----
TOTAL.................................. 52 $14,867,000 61.4%
== =========== ====
</TABLE>
- -------------------------
(1) The Sandor Acquisition and the Westland Acquisition occurred after December
31, 1997; thus, the effect of these acquisitions is not included in the
table. See "Recent Developments."
(2) "Annualized Base Rent" of the Company as of December 31, 1997 is determined
by multiplying by 12 the monthly rent as of that date, but excluding from
the monthly rent (i) percentage rents, (ii) additional rent payable by
tenants such as common area maintenance, real estate taxes and other expense
reimbursements and (iii) future contractual rent increases.
(3) Subsidiary of Dick's Sporting Goods.
TAX STATUS
The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code") and the
applicable Treasury Regulations (the "REIT Requirements"). The Company believes
that it is organized and operates in such a manner as to qualify for taxation as
a REIT under the Code, and the Company intends to continue to operate in such a
manner; however, no assurance can be given that it has operated in such a manner
or that it will continue to operate in a manner so as to qualify or remain
qualified as a REIT. See "Risk Factors -- Failure to Qualify as a REIT." As a
REIT, the Company generally is not subject to Federal corporate income taxes on
that portion of its ordinary income or capital gain that is currently
distributed to shareholders. Even if the Company qualifies as a REIT, it will,
however, still be subject to certain Federal, state and local taxes. See
"Federal Income Tax Considerations."
9
<PAGE> 11
THE OFFERING
COMMON STOCK OFFERED........................ 1,500,000 shares (1)
COMMON STOCK OUTSTANDING AFTER THE
OFFERING.................................... shares (1)
USE OF PROCEEDS............................. The proceeds from the sale of
the Shares will be used to
reduce existing indebtedness and
to redevelop certain Properties.
The balance will be available
for general corporate purposes,
including the acquisition of
additional properties. See "Use
of Proceeds."
DISTRIBUTION POLICY......................... The Company has paid regular
quarterly distributions to its
shareholders of $.425 per share
($1.70 per share on an
annualized basis) on the Common
Stock since the completion of
the IPO. Future distributions
will depend on the Company's
actual results of operations,
cash flows from operations,
economic conditions and other
factors, such as working capital
requirements, cash requirements
to fund investing and financing
activities, debt service
requirements, including the
repayment or refinancing of
indebtedness, capital
expenditure requirements,
including improvements to and
expansions of existing
Properties and the development
of additional properties. For
Federal income tax purposes,
100%, 79.4%, and 27.3% of the
distributions of $1.70 per share
paid in 1997, 1996 and 1995,
respectively, represented a
return of capital.
RESTRICTIONS ON OWNERSHIP................... Ownership by a single holder of
more than 9.9% of the Common
Stock of the Company is
restricted in order, among other
things, to ensure that the
Company remains qualified as a
REIT for Federal income tax
purposes. See "Restrictions on
Transfer."
NYSE SYMBOL................................. The Common Stock is listed on
the NYSE under the symbol MAL.
- -------------------------
(1) Does not include 225,000 shares that may be issued upon the exercise of the
Underwriters' over-allotment option. See "Underwriting".
10
<PAGE> 12
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data for the
Company and its predecessor, Malan (Predecessor), as defined herein, on a
historical basis and selected financial data for the Company on a pro forma
basis. Malan (Predecessor) is not a legal entity but, rather, a combination of
the principal real estate properties of a partnership, Bricktown Square
Associates ("BTS"), and the real estate management operations of an affiliated
S-Corporation, Malan Construction Company ("MCC"), which managed the operations
of BTS. On June 24, 1994, MCC completed its IPO and began operating as a REIT
under the name Malan Realty Investors, Inc.
The unaudited pro forma operating data is presented as if the Midwest
Acquisition, the Westland Acquisition and the Offering and related transactions
had occurred on January 1, 1997. The pro forma balance sheet data is presented
as if the Midwest Acquisition and the Offering and related transactions had
occurred on March 31, 1998. The pro forma financial information is not
necessarily indicative of what the actual financial position and results of
operations of the Company would have been as of and for the periods indicated,
nor does it purport to represent the financial position and results of
operations for future periods. See "Recent Developments" and the pro forma
financial statements of the Company.
The selected financial data of Malan Realty Investors, Inc. for the year
ended December 31, 1994, consists of the operations of Malan (Predecessor) for
the period beginning January 1 through June 23, 1994, combined with the
operations of Malan Realty Investors, Inc. from June 24 through December 31,
1994. The selected financial data of Malan Realty Investors, Inc. includes the
effects of the IPO and related offerings and the Company's subsequent
acquisitions. The selected financial data presented as of and for the period
ended December 31, 1993 is derived from the combined financial statements of
Malan (Predecessor). The following data should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED MARCH 31, -----------------------------------------------------
------------------------------- THE COMPANY
PRO FORMA HISTORICAL -----------------------------------------------------
--------- ------------------- PRO FORMA
1998 1998 1997 1997 1997 1996 1995 1994
---- ---- ---- --------- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Total revenues........................ $10,160 $ 9,054 $ 8,887 $ 39,687 $ 34,983 $ 34,963 $ 32,247 $ 17,377
Operating expenses
Property operating and maintenance... 791 736 1,065 3,200 2,867 2,769 1,961 823
Other operating expenses............. 347 347 329 1,493 1,493 1,481 1,216 841
Real estate taxes.................... 2,042 1,957 1,919 8,281 7,891 7,715 7,511 4,251
General and administrative........... 389 389 394 1,545 1,545 1,664 1,463 1,488
Depreciation and amortization........ 1,525 1,310 1,265 5,975 5,068 4,920 4,597 2,125
------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses.............. 5,094 4,739 4,972 20,494 18,864 18,549 16,748 9,528
------- -------- -------- -------- -------- -------- -------- --------
Operating income...................... 5,066 4,315 3,915 19,193 16,119 16,414 15,499 7,849
Interest expense...................... 4,265 4,016 3,922 17,338 15,576 15,815 13,749 6,477
------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before minority interest
in partnership....................... 801 299 (7) 1,855 543 599 1,750 1,372
Minority interest in partnership...... 151
------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... $ 801 $ 299 $ (7) $ 1,855 $ 543 $ 599 $ 1,750 $ 1,523
======= ======== ======== ======== ======== ======== ======== ========
OTHER DATA
Funds From Operations(1).............. $ 2,773 $ 2,056 $ 1,641 $ 9,450 $ 7,231 $ 7,100 $ 7,171 $ 3,757
======= ======== ======== ======== ======== ======== ======== ========
Basic earnings per share(2)........... $ 0.15 $ 0.08 $ 0.00 $ 0.37 $ 0.15 $ 0.17 $ 0.49 $ 0.72
======= ======== ======== ======== ======== ======== ======== ========
Weighted average basic shares......... 5,284 3,784 3,464 5,046 3,546 3,464 3,547 2,114
======= ======== ======== ======== ======== ======== ======== ========
Diluted earnings per share(2)......... $ 0.15 $ 0.08 $ 0.00 $ 0.36 $ 0.15 $ 0.17 $ 0.49 $ 0.72
======= ======== ======== ======== ======== ======== ======== ========
Weighted average diluted shares....... 5,328 3,828 3,464 5,091 3,591 3,475 3,547 2,114
======= ======== ======== ======== ======== ======== ======== ========
Cash distributions declared per basic
common share......................... $ 0.425 $ 0.425 $ 1.70 $ 1.70 $ 1.70 $ 0.85
======== ======== ======== ======== ======== ========
Gross leasable area at period
end(3)............................... 6,066 5,738 5,713 6,066 5,653 5,707 5,695 5,407
======= ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------
MALAN
(PREDECESSOR)
-------------
1993
----
<S> <C>
OPERATING DATA
Total revenues........................ $ 6,778
Operating expenses
Property operating and maintenance... 285
Other operating expenses............. 778
Real estate taxes.................... 1,447
General and administrative........... 818
Depreciation and amortization........ 682
-------
Total operating expenses.............. 4,010
-------
Operating income...................... 2,768
Interest expense...................... 3,130
-------
Income (loss) before minority interest
in partnership....................... (362)
Minority interest in partnership...... 274
-------
Net income (loss)..................... $ (88)
=======
OTHER DATA
Funds From Operations(1).............. $ 390
=======
Basic earnings per share(2)...........
Weighted average basic shares.........
Diluted earnings per share(2).........
Weighted average diluted shares.......
Cash distributions declared per basic
common share.........................
Gross leasable area at period
end(3)............................... 294
=======
</TABLE>
<TABLE>
<CAPTION>
PRO
FORMA THE COMPANY
-------- ----------------------------------------------------------------
MARCH 31, DECEMBER 31,
------------------------------- -----------------------------------------
1998 1998 1997 1997 1996 1995 1994
-------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate, before accumulated depreciation..... $240,325 $223,710 $207,590 $215,785 $207,590 $206,085 $174,173
Total assets..................................... 263,212 224,605 212,987 216,138 217,852 223,360 192,184
Mortgage indebtedness............................ 112,389 98,739 82,331 88,585 83,643 83,734 43,123
Convertible debentures........................... 55,484 55,484 61,285 56,680 61,285 61,285 63,795
Convertible notes................................ 27,000 27,000 27,000 27,000 27,000 27,000 27,000
Minority interest in partnership.................
Shareholder's equity (deficit)................... 58,778 33,821 33,528 33,942 34,993 41,243 48,091
</TABLE>
<TABLE>
<CAPTION>
MALAN
(PREDECESSOR)
DECEMBER 31,
-------------
1993
-------------
<S> <C>
BALANCE SHEET DATA
Real estate, before accumulated deprec $30,617
Total assets.......................... 31,960
Mortgage indebtedness................. 35,843
Convertible debentures................
Convertible notes.....................
Minority interest in partnership...... (3,261)
Shareholder's equity (deficit)........ (5,162)
</TABLE>
(footnotes on next page)
11
<PAGE> 13
(footnotes for previous page)
- -------------------------
(1) Management considers Funds From Operations to be an appropriate measure of
performance of an equity real estate investment trust. The Company
calculates Funds From Operations as net income or (loss) excluding gains and
losses from sales of property, further adjusted for certain non-cash items
including depreciation and amortization of deferred financing costs included
in interest expense. It is the opinion of management that reduction for or
inclusion of these items is not meaningful in evaluating income-producing
real estate which, in general, has historically not depreciated. Funds From
Operations does not represent cash generated from operating activities in
accordance with generally accepted accounting principals and is not
necessarily indicative of cash available to fund cash needs, including
distributions. Funds From Operations should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity or
the ability to pay distributions but rather as a supplemental tool to be
used in conjunction with these factors in analyzing the Company's overall
performance. The Company is aware that there are variations between
companies in the REIT industry as to how Funds From Operations is
calculated. See "Funds From Operations" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) The Company adopted Statement of Financial Accounting Standards ("SFAS"),
No. 128, "Earnings per Share", for the year ended December 31, 1997;
accordingly, all prior-period data has been restated. In accordance with
SFAS No. 128, the effect of conversion of all of the debt securities would
be antidilutive and as such is not included in the weighted average diluted
shares reported above.
(3) Malan (Predecessor) GLA includes only Bricktown Square.
12
<PAGE> 14
RISK FACTORS
An investment in the Shares involves various risks. Prospective investors
should carefully consider, among other factors, the matters described below.
RELIANCE UPON MAJOR TENANTS
As of December 31, 1997, 54.0% and 7.1% of the GLA at the Properties was
leased to Kmart and Wal-Mart, respectively, and annualized base rents from Kmart
and Wal-Mart represented 35.7% and 6.6%, respectively, of the annualized base
rents from the Properties. The Company, and some tenants in the community
shopping centers anchored by Kmart or Wal-Mart stores, could be adversely
affected in the event of Kmart's or Wal-Mart's bankruptcy or insolvency, a
change in the business strategy of either retailer, a downturn in Kmart's or
Wal-Mart's business due to economic conditions or competition from other
national and local retailers and discount stores, or in the event that either
Kmart or Wal-Mart closes any of their stores prior to the expiration of their
respective leases and continues to pay the rent for the remainder of the lease
term or does not renew their leases as they expire. If Kmart or Wal-Mart decides
to vacate an anchor store in a community shopping center and is not replaced by
a new anchor tenant, the customer volume at the community shopping center may be
affected, thereby reducing the revenue of other tenants at the community
shopping center and potentially decreasing the percentage rents the Company
collects. Furthermore, certain tenants may have termination or abatement rights
should Kmart or Wal-Mart withdraw from a community shopping center.
ACQUISITION, DEVELOPMENT AND REDEVELOPMENT RISKS
The Company intends to continue to evaluate and pursue acquisition
opportunities for community shopping centers, freestanding stores and other
retail and entertainment properties. Any acquisition, including the Sandor
Acquisition, the Westland Acquisition and the acquisition of the entertainment
facility located in Lawrence, Kansas, entails risks that investments will fail
to perform in accordance with expectations and that judgments with respect to
the costs of improvements to bring an acquired property up to standards
established by the Company for the market position intended for that property
will prove inaccurate. In addition, any real estate investment involves a degree
of general investment risk.
While the Company's policies with respect to development and redevelopment
activities are intended to limit some of the risks otherwise associated with
development, the Company will nevertheless incur certain risks, including the
expenditure of funds on, and devotion of management's time to, projects which
may not come to fruition; the risk that construction costs with respect to a
project may exceed original estimates, possibly making the project uneconomic;
and the risk that occupancy rates and rents at a completed project will not be
sufficient to make the project profitable.
Furthermore, there are numerous developers and real estate companies, some
of whom have greater financial and other resources than the Company, that
compete with the Company in seeking properties for acquisition and tenants who
will lease space in these properties. There can be no assurance that the Company
will be able to continue to successfully compete with such entities in its
development, acquisition and leasing activities.
RISKS OF HIGH DISTRIBUTION PAYOUT PERCENTAGE
Since the IPO, the annual distribution rate of $1.70 per share has resulted
in a payout ratio ranging from 82.9% to 85.4% of Funds From Operations. This
payout level could have a negative impact on the operations of the Company since
the Company's remaining cash from operations for acquisitions, development and
other activities could be limited. No assurances can be given that the Company
will be able to maintain this distribution rate.
13
<PAGE> 15
REAL ESTATE INVESTMENT CONSIDERATIONS
Economic Performance and Value of Shopping Centers Dependent on Many
Factors.
Shopping center economic performance and values could be adversely affected
by a number of factors, including changes in the national, regional, and local
economic climate, the quality of tenant management, local conditions (such as
the supply and demand for retail space), the attractiveness of the Properties to
tenants and their customers, the ability and willingness of the Company to
provide adequate maintenance and insurance, operating costs and the public
perception of the safety of customers at the Properties. In addition to the
factors affecting economic performance of shopping centers, shopping center
values could be adversely affected by such factors as government regulations and
changes in real estate zoning and tax laws, interest rate levels, the
availability of financing and potential liability under environmental and other
laws. Adverse changes in one or more of these factors could adversely affect the
Company's income and funds available for distribution, as well as the value of
the Properties.
Dependence on Rental Income from Real Property.
Substantially all of the Company's income is derived from rental income
from real property. If sales at the tenants' stores operating in the Properties
decline sufficiently, tenants might be unable to pay their existing minimum
rents or expense recovery charges, since such rents and charges would represent
a higher percentage of their sales. In addition, if there were such declines in
sales, new tenants would be less likely to be willing to pay minimum rents as
high as they would otherwise pay. In a recessionary environment, such risks are
increased.
If tenants were unable to meet their lease obligations or if the Company
was unable to lease space or collect rental payments, the Company's income and
cash flow would be adversely affected. In the event of a default by a tenant,
the Company may experience delays in enforcing its rights as lessor and may
incur substantial costs in protecting its investment.
The Company will be subject to the risks that upon expiration, leases may
not be renewed, the space may not be relet or the terms of renewal or reletting
(including the cost of required renovations) may be less favorable than the
expired lease terms.
Inability to Compete.
The tenants at the Properties compete with other retailers in attracting
customers. Community shopping centers face increasing competition from discount
stores, outlet malls, discount shopping clubs, direct mail and telemarketing.
There are numerous community shopping centers that compete with the Properties
in seeking tenants to lease space and numerous companies that compete with the
Company in seeking properties for acquisition or development. No assurance can
be given that the Properties will be able to compete successfully in the future.
The inability of one or more of the Properties to compete successfully would
adversely affect the Company's revenues and, consequently, funds available to
pay distributions.
Bankruptcy or Insolvency of Tenants.
From time to time, tenants at the Properties have defaulted on their leases
or sought the protection of the bankruptcy laws. Such events could result in the
termination of a tenant's lease and cause a reduction in the Company's Funds
From Operations.
In the event of bankruptcy or insolvency of a lessee, the Company may
experience delays in enforcing its rights as lessor and may incur substantial
costs in protecting its investment. No assurance can be given that tenants will
not become subject to a bankruptcy proceeding in the future or, if any tenants
become subject to such a proceeding, that they will affirm their leases and
continue to make rental payments in a timely manner. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in the failure to make rental payments when due.
If tenant leases are not affirmed following bankruptcy or a tenant's financial
condition weakens, the Company's income may be adversely affected.
14
<PAGE> 16
Illiquidity of Real Estate Investments.
Equity investments in real estate are relatively illiquid and such
illiquidity limits the ability of the Company to promptly change its portfolio
in response to changes in economic or other conditions.
Uninsured Loss.
The Company carries comprehensive liability, fire, flood, earthquake,
tornado, extended coverage and rental loss insurance on the Properties, with
those policy specifications and insured limits customarily carried for similar
properties. There are, however, certain types of losses (generally of a
catastrophic nature, such as from wars, riots or civil disturbances) which may
be either uninsurable or for which the cost of insuring is not economically
justifiable. Should an uninsured loss occur, the Company could lose both its
invested capital in and anticipated profits from the Property which would
nevertheless continue to be subject to the obligation of any mortgage
indebtedness. Any such loss could adversely affect the profitability and cash
flow of the Company. See "Objectives and Strategies -- Insurance."
ADVERSE EFFECT OF INCREASE IN MARKET INTEREST RATES ON COMMON STOCK PRICE AND
FINANCIAL POSITION
Two of the factors that will influence the price of the Common Stock will
be the yield and annual distribution rate on the Common Stock. An increase in
market interest rates may lead Common Stock purchasers to demand a higher yield
and higher annual distribution rate on the Common Stock. If the annual
distribution rate is not increased, the market price of the Common Stock could
be adversely affected as investors transfer their investments to higher yielding
securities, potentially resulting in a lower Common Stock price. In addition, an
increase in interest rates will increase interest expense under the Company's
variable rate indebtedness. The Company has entered into a $25 million revolving
loan agreement (the "Greenwich Capital Line") with Greenwich Capital Markets,
Inc., a division of National Westminster Bank Plc ("Greenwich"). Amounts
outstanding under the Greenwich Capital Line bear interest at LIBOR plus 150
basis points (7.14% on May 29, 1998). The Greenwich Capital Line may be
increased to $50 million with the pledge of additional collateral. The Company
also has a secured $4.5 million line of credit with First Chicago NBD. Amounts
outstanding under this line of credit bear interest at LIBOR plus 200 basis
points or in certain instances, the bank's prime rate (8.5% on May 29, 1998). As
of May 29, 1998, the Company had $20.1 million outstanding under these loans.
The Company is therefore subject to the risk of interest rate fluctuations on
this variable rate indebtedness. See "Mortgage Indebtedness."
INABILITY TO COMPLY WITH REIT DISTRIBUTION REQUIREMENTS
REIT Requirements.
To obtain the favorable tax treatment for REITs qualifying under the Code,
the Company generally is required each year to distribute to its shareholders at
least 95% of its otherwise taxable income (after certain adjustments). In
addition, the Company will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of (i) 85% of its ordinary income for the
calendar year; (ii) 95% of its capital gains net income for the calendar year;
and (iii) any undistributed taxable income from prior periods. Failure to comply
with the 95% distribution requirement would result in the Company failing to
qualify as a REIT and the Company's income being subject to tax at regular
corporate rates.
Inability of the Company to Maintain Distributions.
Distributions by the Company are dependent on a number of factors,
including the Company's rental income and financial condition, any decision to
reinvest funds rather than to distribute such funds, capital expenditures, the
annual distribution requirements under the REIT provisions of the Code and such
other factors as the Company deems relevant. In the event of a default or a
lease termination by a lessee, there could be a decrease or cessation of rental
payments. In addition, the amount available to make distributions may decrease
if properties acquired in the future yield lower than expected operating cash
flow. If the Company
15
<PAGE> 17
incurs additional indebtedness in the future, it will require additional funds
to service such indebtedness and, as a result, amounts available to make
distributions may decrease.
The Company intends to make distributions to its shareholders to comply
with the 95% distribution provisions of the Code and to avoid the nondeductible
excise tax discussed above. The Company anticipates that the cash flow from
operations will be sufficient to enable it to pay its operating expenses and
meet the distribution requirements discussed above, but no assurances can be
given in this regard.
In addition, differences in timing between the receipt of income and the
payment of expenses in arriving at taxable income of the Company could require
the Company to borrow funds to meet the 95% distribution requirement.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly Messrs. Gramer, Kaline and Broderick, the President, Vice President
and Chief Accounting Officer, respectively. While the Company believes that it
could find suitable replacements for these key personnel, the loss of their
services or the limitation of their availability could have an adverse effect on
the Company's financial condition and results of operations. Mr. Gramer has
entered into an employment agreement with the Company that is effective from
June 25 to June 24 of each year and that is automatically renewed each year for
an additional one-year period unless the Company or Mr. Gramer notifies the
other party prior to March 25 that the employment arrangement will cease.
Pursuant to the terms of the employment agreement, Mr. Gramer agrees not to
compete with the Company during his employment and for one year thereafter. The
Company has key-man life insurance only on Mr. Gramer.
NO LIMITATION ON THE INCURRENCE OF DEBT
The Company intends to maintain a capital structure with a ratio of
long-term debt (excluding the Company's outstanding convertible debentures and
convertible notes) to total market capitalization of 50% or less. Fluctuations
in the market price of the Company's Common Stock may cause this ratio to vary
from time to time. Furthermore, the Company may elect from time to time to
operate with debt levels which are in excess of 50% of total market
capitalization. The organizational documents of the Company contain no
limitation on the amount or percentage of indebtedness which the Company may
incur. Therefore, the Board of Directors, without a vote of the shareholders,
could alter the general policy on borrowings at any time. If the Company's debt
capitalization policy is changed, the Company could become more leveraged,
resulting in an increase in debt service that could adversely affect the
Company's operating cash flow and its ability to make expected distributions to
shareholders and could result in an increased risk of default on its
obligations.
Additionally, the Company may consider factors other than total market
capitalization in making decisions regarding the incurrence of debt (such as the
relative costs of debt and equity capital, the market value of the Properties,
growth and acquisition opportunities and the ability of particular Properties
and the Company, as a whole, to generate cash flow to cover expected debt
service). See "Policies with Respect to Certain Activities -- Financing
Policies."
RISKS ASSOCIATED WITH BORROWING, INCLUDING FORECLOSURE
In the event that rental income from the Properties and any properties that
may be acquired or developed by the Company in the future is insufficient to
pay, or the Company is otherwise unable to pay, any principal or interest due
under its secured indebtedness (see "Capitalization" and "Financial Statements")
or the Company otherwise fails to meet its other obligations under its secured
indebtedness, the Properties securing such indebtedness may be foreclosed.
Furthermore, much of the Company's secured indebtedness is cross-collateralized
such that default with respect to a single property could result in foreclosure
actions against many Properties.
The borrowings of the Company are not expected to amortize over the life of
such loans and will therefore require balloon payments. The ability to repay
indebtedness at maturity or otherwise will depend on the ability
16
<PAGE> 18
of the Company either to refinance such indebtedness, to raise additional equity
or to sell Properties. A sale of the Properties could result in a "prohibited
transaction", thereby subjecting the Company to a 100% tax on the gain from such
a sale. See "Federal Income Tax Considerations -- Requirements for
Qualification." The Company has obtained no commitments with respect to
refinancing any indebtedness. There can be no assurance that such refinancing
will be available on reasonable terms and conditions, or that the amounts that
may be received from such refinancing will be sufficient to make the required
balloon payments. If the Company is otherwise unable to repay any of its
borrowings on or before their respective maturity dates, the Company may have to
sell or borrow against any Properties that are not encumbered by such borrowings
to meet such repayments or limit or eliminate distributions that it otherwise
intended to make to its shareholders. Any resulting limitation or elimination of
distributions could have an adverse impact upon the Company's status as a REIT.
See "Inability to Comply with REIT Distribution Requirements -- Inability of the
Company to Maintain Distributions."
The Company may, without shareholder vote, use leverage through borrowing
on any unencumbered Properties to increase the Company's rate of return on its
investments and allow the Company to increase the number and size of its
investments. Such use of leverage increases the risk that the cash generated by
operations may be insufficient to meet debt payment obligations or to make
expected distributions and/or distributions required by the REIT provisions of
the Code.
ABILITY TO CHANGE INVESTMENT AND FINANCING POLICIES WITHOUT SHAREHOLDER APPROVAL
The investment and financing policies of the Company and its policies with
respect to certain other activities, including its growth, capitalization,
distributions, and investment and operating policies, are determined by the
Board of Directors. These policies may be changed from time to time at the
discretion of the Board of Directors without a vote of the shareholders of the
Company. See "Policies with Respect to Certain Activities."
FAILURE TO QUALIFY AS A REIT
Although the Company believes that it is organized and operates in such a
manner so as to qualify as a REIT under the Code, no assurance can be given that
the Company will remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations. The determination of
various factual matters and circumstances not entirely within the Company's
control may affect its ability to qualify as a REIT. In addition, no assurance
can be given that legislation, new regulations, administrative interpretations,
or court decisions will not significantly change the tax laws with respect to
the qualification as a REIT or the Federal income tax consequences of such
qualification.
If in any taxable year the Company fails to qualify as a REIT, the Company
would not be allowed a deduction for distributions to shareholders in computing
its taxable income and would be subject to Federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. As a result, the amount available for distribution to the Company's
shareholders would be reduced for the year or years involved. In addition,
unless entitled to relief under certain statutory provisions, the Company would
also be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification was lost.
Notwithstanding that the Company currently operates in a manner designed to
qualify as a REIT, future economic, market, legal, tax, or other considerations
may cause the Company to determine that it is in the best interest of the
Company and its shareholders to revoke the REIT election. The Company would be
disqualified to elect treatment as a REIT for the four taxable years following
the year of such revocation. See "Federal Income Tax Considerations."
ENVIRONMENTAL MATTERS
Under various Federal, state and local laws, ordinances and regulations, an
owner or an operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in
17
<PAGE> 19
such property. Such laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The cost of any required remediation and the
owner's or operator's liability therefor as to any property is generally not
limited under such laws and could exceed the value of the property and/or the
aggregate assets of the owner. In addition, the presence of such substances, or
the failure to properly remediate such substances, may adversely affect the
owner's ability to borrow using such property as collateral.
Each of the Properties has been the subject of a Phase I environmental
assessment (which generally involved inspection without soil sampling or ground
water analysis) by an independent environmental consultant. The Company has
pursued or is pursuing investigation or corrective action whenever the reports
from the Phase I environmental assessments recommend further investigation or
corrective action. Reports from the Phase I environmental assessments have not
revealed, nor is the Company aware of, any environmental liability (including
asbestos-related liability) that the Company's management believes would have a
material adverse effect on the Company's business, assets or results of
operations. No assurance, however, can be given as to the reliability of these
reports or that these reports reveal all environmental liabilities or that no
prior owner or prior or current tenant created any material adverse
environmental condition not known to the Company. In addition to the Properties,
the Company manages certain third-party retail properties and may thus be
considered an "operator" of such properties under the environmental laws and,
under certain circumstances, may have liability under the environmental laws for
environmental liabilities related to such third-party properties.
The Company believes that it is in compliance in all material respects with
all Federal, state and local ordinances and regulations regarding hazardous or
toxic substances. The Company has not been notified by any governmental
authority of any material non-compliance, liability or other claim in connection
with any of the Properties.
LIMITATIONS ON OWNERSHIP AND CHANGE IN CONTROL
Ownership Limit.
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding stock of the Company may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code, to include
certain entities). The Company's Articles prohibit the direct or constructive
ownership of more than 9.9% (the "Ownership Limit") of the Common Stock by any
single shareholder, with certain exceptions. The constructive ownership rules
are complex and may cause Common Stock owned, directly or constructively, by a
group of related individuals or entities to be deemed to be constructively owned
by one individual or entity.
The Ownership Limit may have the effect of precluding or deterring
acquisition of control of the Company by a third party even where a change in
control may be in the best interest of the shareholders. See "Restrictions on
Transfer."
Preferred Stock.
The Articles authorize the Board of Directors to approve the issuance of
shares of preferred stock and to establish the preferences and rights (including
the right to vote and the right to convert into shares of Common Stock) of any
such shares issued. See "Certain Provisions of the Articles of Incorporation and
By-Laws -- Preferred Stock." The issuance of preferred stock could have the
effect of delaying or preventing a change in control of the Company even where a
change in control is in the shareholders' interest.
Control Shares.
The Michigan Business Corporation Act (the "MBCA") provides certain
restrictions upon the voting rights of "control shares" in a Michigan
corporation, which may have an antitakeover effect. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the holder thereof, would entitle the acquiror to
exercise a certain degree of voting power, as described in the MBCA, in electing
the directors. The MBCA provides that "control shares" have no voting rights
except to
18
<PAGE> 20
the extent approved by an affirmative vote of a majority of the outstanding
shares entitled to vote on the matter, excluding shares held by the acquiror and
the officers and any directors who are also employees of the Company.
FUTURE DILUTION FROM CONVERTIBLE SECURITIES, OPTIONS, WARRANTS AND FUTURE SHARE
OFFERINGS
The Company has outstanding convertible notes and debentures maturing July
2003 and 2004, respectively, which upon conversion, could result in the issuance
of 1,588,235 and 3,235,529, respectively, additional freely tradeable shares of
Common Stock. The conversion price for the notes and debentures is $17.00 per
share. In addition, the Company reserved 400,000 shares of Common Stock for
issuance pursuant to options under an employee stock option plan. Options
covering 250,000 shares were granted in connection with the IPO and options
covering 53,366 shares (net of options previously exercised) have since been
granted under the employee stock option plan. See "Management -- Stock Option
Plan." Furthermore, the Company reserved 80,000 shares of Common Stock, subject
to certain adjustments, for issuance pursuant to a non-employee director stock
option plan. Options to purchase up to 13,792 shares (net of options previously
executed) have been issued in connection with the non-employee director stock
option plan. Finally, as part of the IPO, National Westminster Bank Plc, New
York Branch, was issued warrants to acquire up to 353,000 shares of Common Stock
at $20.40 per share. The warrants expire in June 1999.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock. Sales of substantial amounts of the shares, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock.
The Company and Messrs. Gramer, Kaline and Broderick have agreed, subject
to certain limited exceptions, not to offer, sell, contract to sell or otherwise
dispose of any Common Stock for a period of 180 days after the date of the
Prospectus without the prior written consent of the Underwriters. See
"Underwriting."
FINANCING OF FUTURE DEVELOPMENTS OR ACQUISITIONS
The Company expects to redevelop existing Properties and develop and
acquire additional properties. Since the Company must distribute 95% of its REIT
taxable income to qualify as a REIT, there may not be sufficient available cash
in excess of distributions to fund such future developments or acquisitions.
Thus, the necessary funds for future developments, redevelopments, acquisitions
or required tenant improvements will be obtained, to the extent available,
primarily from cash flow in excess of that required to be distributed, net
proceeds from the issuance of equity securities, and, within certain debt
limitations, bank borrowings and the issuance of debt securities. There can be
no assurance that financing for future projects will be available to the Company
on satisfactory terms at the times required. See "Adverse Effect of Increase in
Market Interest Rates on Common Stock Price and Financial Position" and "Use of
Proceeds".
RISK OF REDUCED FUNDS AVAILABLE FOR DISTRIBUTION UPON THE EXERCISE OF CERTAIN
PURCHASE OPTIONS
Several of the Properties are subject to purchase options granted to
certain tenants. In the event that the purchase options are exercised, the
Company may be unable to reinvest the proceeds resulting from the exercise of
such purchase options, which may have the effect of reducing funds available to
pay distributions. See "Business and Properties -- Options to Purchase Granted
to Certain Tenants."
TREATMENT OF ASSETS OF THE COMPANY AS PLAN ASSETS UNDER ERISA
The Company believes that the Shares offered hereby will be
"publicly-offered securities" for purposes of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and that, consequently, the assets of
the Company are not, and will not be, "plan assets" of an ERISA plan, individual
retirement account, or other non-ERISA plan that invests in the Shares. If the
Company's assets are deemed to be plan assets of any such plan, then the
Company's ability to engage in business transactions would be hampered because:
(i) certain persons exercising discretion as to the Company's assets might be
considered to be fiduciaries
19
<PAGE> 21
under ERISA; (ii) transactions involving the Company undertaken at their
direction or pursuant to their advice might violate ERISA; and (iii) certain
transactions that the Company might enter into in the ordinary course of its
business might constitute "prohibited transactions" under ERISA and the Code.
See "ERISA Considerations."
RISKS INVOLVED IN DEVELOPMENT ACTIVITIES THROUGH PARTNERSHIPS AND JOINT VENTURES
Instead of developing properties directly, the Company may develop them as
a partner or co-venturer, although the Company has not done so to date.
Partnership or joint venture developments may, under certain circumstances,
involve risks not otherwise present, including the possibility that the
Company's partner or co-venturer might become bankrupt, or that such partner or
co-venturer might at any time have economic or other business interests or goals
which are inconsistent with the business interests or goals of the Company. Such
partner or co-venturer may also take action contrary to the instructions or
requests of the Company or contrary to the Company's policies or objectives,
including the Company's policy with respect to maintaining its qualification as
a REIT. Actions by such partner or co-venturer might result in subjecting
properties owned by the partnership or joint venture to additional risk. Such
investments also have the potential risk of impasse on decisions because neither
the partner nor the co-venturer would have full control over the partnership or
joint venture. There is no limitation as to the amount of available funds that
may be invested by the Company in partnerships or joint ventures.
20
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the Offering are expected to total
$ ($ if the Underwriters' over-allotment is exercised in
full). The Company intends to use a portion of the net proceeds of the Offering
to pay off (i) the Greenwich Capital Line, which had an outstanding balance of
$19.1 million on May 29, 1998, an interest rate of 7.14% and a maturity date of
November 1999 and (ii) the line of credit with First Chicago NBD which had an
outstanding balance of $1.0 million on May 29, 1998, an interest rate of 8.5%
and a maturity date of March 1999. Net borrowings under the Greenwich Capital
Line have been used to (i) fund a portion of the Sandor Acquisition, (ii)
acquire the entertainment facility located in Lawrence, Kansas, (iii) fund the
Westland Acquisition and (iv) pay costs associated with the redevelopment and
expansion of the community shopping center in Lawrence, Kansas. Net borrowings
under the First Chicago NBD line of credit have been used to fund a portion of
the Sandor Acquisition. The Company intends to use the balance of the net
proceeds for general corporate purposes, which may include the redevelopment of
certain Properties and the acquisition of additional properties. Proceeds not
immediately required for the purposes described above may be invested in
short-term, interest bearing accounts and securities, which are consistent with
the Company's qualifications as a REIT.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
The Common Stock is listed on the NYSE under the symbol "MAL." The
following table sets forth the reported high and low sale prices of the Common
Stock for the periods indicated and the distributions per share paid in such
periods.
CLOSING PRICE PER SHARE
<TABLE>
<CAPTION>
DISTRIBUTIONS
HIGH LOW PER SHARE(1)
---- --- -------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
1st Quarter............................................... $14.50 $11.38 $.425
2nd Quarter............................................... 15.50 13.63 .425
3rd Quarter............................................... 14.88 13.88 .425
4th Quarter............................................... 16.38 13.88 .425
YEAR ENDED DECEMBER 31, 1997:
1st Quarter............................................... 17.13 15.88 .425
2nd Quarter............................................... 18.38 16.38 .425
3rd Quarter............................................... 18.00 16.88 .425
4th Quarter............................................... 19.56 17.19 .425
YEAR ENDED DECEMBER 31, 1998:
1st Quarter............................................... 18.31 17.31 .425
2nd Quarter (through May 29, 1998)........................ 18.00 17.13 .425
</TABLE>
- -------------------------
(1) Distributions are shown for the periods during which they were declared.
These distributions were or will be paid in the immediate subsequent period.
On May 29, 1998, the closing sale price of the Common Stock as reported on
the NYSE was $17.81 per share. As of May 29, 1998, there were 3,840,375 shares
of Common Stock outstanding which were held by approximately 165 record holders.
The record holders do not reflect the persons or entities who held their shares
in nominee or "street" name.
The Company has paid regular quarterly distributions to its shareholders of
$.425 per share ($1.70 per share on an annualized basis) on the Common Stock
since the completion of the IPO. The Company intends to continue to declare
quarterly distributions to its shareholders. However, distributions by the
Company are determined by the Board of Directors and will depend on the
Company's actual results of operations, cash flows from operations, economic
conditions and other factors, such as debt service requirements, cash
requirements, including the repayment or refinancing of indebtedness, capital
expenditure requirements, including improvements to and expansions of existing
Properties, the development of additional properties, and such other factors as
the Board of Directors deems relevant.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998, the pro forma capitalization of the Company to give effect to the
Sandor Acquisition as though it had occurred on March 31, 1998, and as adjusted
to give effect to the sale of the Shares offered hereby and the application of
the estimated net proceeds therefrom as described under the caption "Use of
Proceeds." The information set forth in the table should be read in conjunction
with the historical and pro forma Financial Statements of the Company and the
Notes thereto.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
------ ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
DEBT:
Mortgages........................................... $ 98,739 $126,739
Convertible debentures.............................. 55,484 55,484
Convertible notes................................... 27,000 27,000
-------- -------- --------
Total Debt....................................... $181,223 $209,223
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value 5 million shares
authorized, none issued and outstanding.......... -- --
Common stock, $.01 par value 30 million shares
authorized; 3,811,463 shares issued and
outstanding on an actual and pro forma basis;
5,311,463 issued and outstanding on an as
adjusted basis................................... 38 38
Additional paid in capital.......................... 51,684 51,684
Accumulated distributions in excess of net income... (17,901) (17,901)
-------- --------
Total Shareholders' Equity....................... 33,821 33,821
-------- -------- --------
Total Capitalization............................. $215,044 $243,044 $
======== ======== ========
</TABLE>
- -------------------------
(1) Gives effect to the Sandor Acquisition as if it had occurred on March 31,
1998.
(2) Assumes the Underwriters' over-allotment option to purchase up to 225,000
shares of Common Stock is not exercised. Further assumes that certain
options and warrants are not exercised and the debentures and notes are not
converted. See "Description of Common Stock -- Additional Equity." In
addition, Directors may elect to be compensated in stock (see "Management --
Compensation of Directors").
22
<PAGE> 24
SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data for the
Company and its predecessor, Malan (Predecessor), as defined herein, on a
historical basis and selected financial data of the Company on a pro forma
basis. Malan (Predecessor) is not a legal entity but, rather, a combination of
the principal real estate properties of a partnership, Bricktown Square
Associates ("BTS"), and the real estate management operations of an affiliated
S-Corporation, Malan Construction Company ("MCC"), which managed the operations
of BTS. On June 24, 1994, MCC completed its IPO and began operating as a REIT
under the name Malan Realty Investors, Inc.
The unaudited pro forma operating data is presented as if the Midwest
Acquisition, the Westland Acquisition and the Offering and related transactions
had occurred on January 1, 1997. The pro forma balance sheet data is presented
as if the Midwest Acquisition and the Offering and related transactions had
occurred on March 31, 1998. The pro forma financial information is not
necessarily indicative of what the actual financial position and results of
operations of the Company would have been as of and for the periods indicated,
nor does it purport to represent the financial position and results of
operations for future periods. See "Recent Developments" and the pro forma
financial statements of the Company.
The selected financial data of Malan Realty Investors, Inc. for the year
ended December 31, 1994, consists of the operations of Malan (Predecessor) for
the period beginning January 1 through June 23, 1994, combined with the
operations of Malan Realty Investors, Inc. from June 24 through December 31,
1994. The selected financial data of Malan Realty Investors, Inc. includes the
effects of the IPO and related offerings and the Company's subsequent
acquisitions. The selected financial data presented as of and for the period
ended December 31, 1993 is derived from the combined financial statements of
Malan (Predecessor). The following data should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED MARCH 31, -----------------------------------------------------
------------------------------- THE COMPANY
PRO FORMA HISTORICAL -----------------------------------------------------
--------- ------------------- PRO FORMA
1998 1998 1997 1997 1997 1996 1995 1994
---- ---- ---- --------- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues
Minimum rent......................... $ 7,234 $ 6,283 $ 5,983 $28,123 $ 24,092 $ 23,836 $ 22,100 $ 11,029
Percentage and overage rents......... 301 301 304 1,177 1,177 1,164 963 573
Recoveries from tenants.............. 2,547 2,399 2,513 9,906 9,271 9,340 8,662 4,577
------- -------- -------- ------- -------- -------- -------- --------
Total rental revenues................ 10,082 8,983 8,800 39,206 34,540 34,340 31,725 16,179
Management and leasing fees.......... 12 12 12 47 47 48 50 899
Interest and other income............ 66 59 75 434 396 575 472 299
------- -------- -------- ------- -------- -------- -------- --------
Total revenues........................ 10,160 9,054 8,887 39,687 34,983 34,963 32,247 17,377
Operating expenses
Property operating and maintenance... 791 736 1,065 3,200 2,867 2,769 1,961 823
Other operating expenses............. 347 347 329 1,493 1,493 1,481 1,216 841
Real estate taxes.................... 2,042 1,957 1,919 8,281 7,891 7,715 7,511 4,251
General and administrative........... 389 389 394 1,545 1,545 1,664 1,463 1,488
Depreciation and amortization........ 1,525 1,310 1,265 5,975 5,068 4,920 4,597 2,125
------- -------- -------- ------- -------- -------- -------- --------
Total operating expenses.............. 5,094 4,739 4,972 20,494 18,864 18,549 16,748 9,528
------- -------- -------- ------- -------- -------- -------- --------
Operating income...................... 5,066 4,315 3,915 19,193 16,119 16,414 15,499 7,849
Interest expense...................... 4,265 4,016 3,922 17,338 15,576 15,815 13,749 6,477
------- -------- -------- ------- -------- -------- -------- --------
Income (loss) before minority interest
in partnership....................... 801 299 (7) 1,855 543 599 1,750 1,372
Minority interest in partnership...... 151
------- -------- -------- ------- -------- -------- -------- --------
Net income (loss)..................... $ 801 $ 299 $ (7) $ 1,855 $ 543 $ 599 $ 1,750 $ 1,523
======= ======== ======== ======= ======== ======== ======== ========
CASH FLOW DATA
Cash flows provided by (used for)
operating activities................. (903) (1,741) $ 5,149 $ 7,117 $ 8,541 $ 9,369
Cash flows provided by (used for)
investing activities................. (1,911) 457 (8,216) (2,162) (33,337) (144,307)
Cash flows provided (used for)
financing activities................. 2,682 (2,781) (2,182) (7,084) 22,142 145,589
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents..................... (132) (4,065) $ (5,249) $ (2,129) $ (2,654) $ 10,651
======== ======== ======== ======== ======== ========
OTHER DATA
Funds From Operations(1).............. $ 2,773 $ 2,056 $ 1,641 $ 9,450 $ 7,231 $ 7,100 $ 7,171 $ 3,757
======= ======== ======== ======= ======== ======== ======== ========
Basic earnings per share(2)........... $ 0.15 $ 0.08 $ 0.00 $ 0.37 $ 0.15 $ 0.17 $ 0.49 $ 0.72
======= ======== ======== ======= ======== ======== ======== ========
Weighted average basic shares......... 5,284 3,784 3,464 5,046 3,546 3,464 3,547 2,114
======= ======== ======== ======= ======== ======== ======== ========
Diluted earnings per share(2)......... $ 0.15 $ 0.08 $ 0.00 $ 0.36 $ 0.15 $ 0.17 $ 0.49 $ 0.72
======= ======== ======== ======= ======== ======== ======== ========
Weighted average diluted shares....... 5,328 3,828 3,464 5,091 3,591 3,475 3,547 2,114
======= ======== ======== ======= ======== ======== ======== ========
Cash distributions declared per basic
common share......................... $ 0.425 $ 0.425 $ 1.70 $ 1.70 $ 1.70 $ 0.85
======== ======== ======== ======== ======== ========
Gross leasable area at period
end(3)............................... 6,066 5,738 5,713 6,066 5,653 5,707 5,695 5,407
======= ======== ======== ======= ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------
MALAN
(PREDECESSOR)
-------------
1993
----
<S> <C>
OPERATING DATA
Revenues
Minimum rent......................... $ 3,268
Percentage and overage rents......... 21
Recoveries from tenants.............. 1,698
-------
Total rental revenues................ 4,987
Management and leasing fees.......... 1,705
Interest and other income............ 86
-------
Total revenues........................ 6,778
Operating expenses
Property operating and maintenance... 285
Other operating expenses............. 778
Real estate taxes.................... 1,447
General and administrative........... 818
Depreciation and amortization........ 682
-------
Total operating expenses.............. 4,010
-------
Operating income...................... 2,768
Interest expense...................... 3,130
-------
Income (loss) before minority interest
in partnership....................... (362)
Minority interest in partnership...... 274
-------
Net income (loss)..................... $ (88)
=======
CASH FLOW DATA
Cash flows provided by (used for)
operating activities................. $ 1,920
Cash flows provided by (used for)
investing activities................. 23
Cash flows provided (used for)
financing activities................. (1,698)
-------
Net increase (decrease) in cash and
cash equivalents..................... $ 245
=======
OTHER DATA
Funds From Operations(1).............. $ 390
=======
Basic earnings per share(2)...........
Weighted average basic shares.........
Diluted earnings per share(2).........
Weighted average diluted shares.......
Cash distributions declared per basic
common share.........................
Gross leasable area at period
end(3)............................... 294
=======
<CAPTION>
PRO
FORMA THE COMPANY
-------- ----------------------------------------------------------------
MARCH 31, DECEMBER 31,
------------------------------- -----------------------------------------
1998 1998 1997 1997 1996 1995 1994
-------- -------- --------- -------- -------- -------- --------
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate, before accumulated depreciation..... $240,325 $223,710 $207,590 $215,785 $207,590 $206,085 $174,173
Total assets..................................... 263,212 224,605 212,987 216,138 217,852 223,360 192,184
Mortgage indebtedness............................ 112,389 98,739 82,331 88,585 83,643 83,734 43,123
Convertible debentures........................... 55,484 55,484 61,285 56,680 61,285 61,285 63,795
Convertible notes................................ 27,000 27,000 27,000 27,000 27,000 27,000 27,000
Minority interest in partnership.................
Shareholder's equity (deficit)................... 58,778 33,821 33,528 33,942 34,993 41,243 48,091
<CAPTION>
MALAN
(PREDECESSOR)
DECEMBER 31,
-------------
1993
-------------
BALANCE SHEET DATA
<S> <C>
Real estate, before accumulated deprec $30,617
Total assets.......................... 31,960
Mortgage indebtedness................. 35,843
Convertible debentures................
Convertible notes.....................
Minority interest in partnership...... (3,261)
Shareholder's equity (deficit)........ (5,162)
</TABLE>
(footnotes on next page)
23
<PAGE> 25
(footnotes for previous page)
- -------------------------
(1) Management considers Funds From Operations to be an appropriate measure of
performance of an equity real estate investment trust. The Company
calculates Funds From Operations as net income or (loss) excluding gains and
losses from sales of property, further adjusted for certain non-cash items
including depreciation and amortization of deferred financing costs included
in interest expense. It is the opinion of management that reduction for or
inclusion of these items is not meaningful in evaluating income-producing
real estate which, in general, has historically not depreciated. Funds From
Operations does not represent cash generated from operating activities in
accordance with generally accepted accounting principals and is not
necessarily indicative of cash available to fund cash needs, including
distributions. Funds From Operations should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity or
the ability to pay distributions but rather as a supplemental tool to be
used in conjunction with these factors in analyzing the Company's overall
performance. The Company is aware that there are variations between
companies in the REIT industry as to how Funds From Operations is
calculated. See "Funds From Operations" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) The Company adopted SFAS No. 128, "Earnings per Share," for the year ended
December 31, 1997; accordingly, all prior period data has been restated. In
accordance with SFAS No. 128, the effect of conversion of all of the debt
securities would be antidilutive and as such is not included in the weighted
average diluted shares reported above.
(3) Malan (Predecessor) GLA includes only Bricktown Square.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Selected
Financial Data and the Company's consolidated financial statements and notes
thereto appearing elsewhere in this Prospectus.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1998 to Three Months Ended March 31,
1997
Total revenue increased approximately $167,000. This is primarily
attributable to an increase in minimum rent of $300,000 offset by a decrease in
recoveries from tenants of $114,000. The increase in minimum rent is primarily
due to the acquisitions of Westland Shopping Center in Westland, Michigan in
February 1998 and the Southwind Theater complex in Lawrence, Kansas in November
1997, which accounted for $236,000 of the increase. The decrease in recoveries
from tenants is due to a decrease in property operating and maintenance expenses
discussed below.
Total operating expenses decreased approximately $233,000 from 1997 to
1998. Property operating and maintenance expense decreased $329,000 primarily
due to lower snow removal costs in 1998. Real estate taxes increased
approximately $38,000 due to the acquisitions of Westland Shopping Center and
the Southwind Theater complex. Depreciation and amortization increased
approximately $45,000, primarily related to depreciation on capitalized roof and
parking lot expenditures incurred in the second half of 1997 and depreciation
related to the acquisitions discussed above.
Interest expense (including related amortization of deferred financing
costs) increased approximately $94,000 primarily due to increased debt levels
from the acquisitions, draws on the Company's lines of credit to fund
acquisitions and the amortization of the deferred financing costs associated
with a $25 million line of credit obtained in November 1997.
Overall, net income increased approximately $306,000 to $299,000 in 1998
from a net loss of approximately $7,000 in 1997 primarily from the acquisitions
discussed above.
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
Total revenue increased approximately $20,000 which is attributable to
increases in minimum and percentage rents of approximately $269,000 offset by
decreases in recoveries from tenants of approximately $69,000 and interest and
other income of $180,000. The increases in rents are primarily attributable to
additional revenues from the acquisition of the Southwind Theater in Lawrence,
Kansas and to the re-leasing and re-tenanting of two vacant former Kmart
buildings in late 1996 offset by revenues lost due to the termination of Kmart's
lease at North Aurora, Illinois. Increases in percentage rents of approximately
$13,000 are attributable to increases in sales for Kmart and Wal-Mart, the
Company's two largest tenants, offset by a decrease resulting from the loss of a
nonrecurring percentage rent of approximately $80,000 received from a tenant in
1996. The decrease in interest and other income resulted primarily from
brokerage commissions and lease termination income earned in 1996 as well as
decreased levels of investable cash resulting from the utilization of $1.25
million of cash reserves to satisfy the repayment of the balance on a mortgage
collateralized by The Shops at Fairlane Meadows ("Fairlane Meadows") in
Dearborn, Michigan. The resulting decrease in interest income is partially
offset by a decrease in interest expense on the mortgage.
Total operating expenses increased approximately $315,000. Increases in
property operating and maintenance, real estate taxes and depreciation and
amortization were approximately $98,000, $176,000 and $148,000, respectively.
The increase in property operating and maintenance was primarily due to
increases in parking lot repairs and snowplowing. Real estate taxes increased
primarily due to increased assessments at Fairlane Meadows and other centers
offset by reductions obtained through successful appeals of tax assessments at
certain centers. Depreciation and amortization increased primarily due to
depreciation on capitalized roof and parking lot expenditures. General and
administrative expenses decreased approximately
25
<PAGE> 27
$119,000, primarily due to lower payroll costs of $48,000 and a decrease in the
cost of directors and officers insurance of $41,000.
Interest expense, including related amortization of deferred financing
costs, decreased approximately $239,000. The decrease is due primarily to
conversions of $4.605 million aggregate principal amount of the Company's 9.5%
subordinated convertible debentures into shares of common stock during 1997. The
debenture conversions accounted for a net decrease in interest expense of
approximately $201,000. The refinancing of a $12.45 million mortgage utilized
for the acquisition of Fairlane Meadows with an $11.2 million loan with Daiwa
Finance Corporation accounted for a decrease in interest expense of
approximately $69,000. An increase in amortization of deferred financing costs
of approximately $40,000, related primarily to a $25 million line of credit
obtained from Greenwich in November 1997, offset the overall decrease from 1996.
Overall, net income decreased $56,000 primarily as a result of increases in
non-cash expenses such as depreciation and amortization of approximately
$148,000 and amortization of deferred financing costs of $40,000 and operating
expenses which could not be recovered from tenants, offset by a decrease in
interest expense resulting from conversions of debentures into common stock.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Results of operations from Properties increased from 1995 to 1996 primarily
due to the Company's acquisitions of Clinton Pointe Shopping Center ("Clinton
Pointe") located in Clinton Township, Michigan, purchased on June 5, 1995, and
Fairlane Meadows, purchased on September 15, 1995. Accordingly, results of
operations for the year ended December 31, 1995 include the results of Clinton
Pointe and Fairlane Meadows since their respective acquisition dates only.
Total revenue increased approximately $2.716 million, which is attributable
to increases in minimum and percentage rents and recoveries from tenants of
approximately $2.615 million and interest and other income of $103,000. The
increases in rents and recoveries from tenants are primarily attributable to the
addition of revenues from Clinton Pointe and Fairlane Meadows of approximately
$2.722 million, increases in percentage rents of approximately $201,000 and
increased recoveries from tenants due to additional recoverable property
operating expenses discussed below, offset by revenues lost of approximately
$718,000 due to lease terminations by Kmart and Builders Square which took
effect in the latter part of 1995. Percentage rents increased primarily due to
increased sales at the Company's largest tenants, Kmart and Wal-Mart, and a
nonrecurring percentage rent payment of approximately $80,000 received from a
tenant at Bricktown Square in Chicago, Illinois, partially offset by percentage
rents lost from tenants, such as Dillons in Wichita, Kansas, who are no longer
operating in their spaces. The increase in interest and other income resulted
primarily from brokerage commissions and lease termination income earned in 1996
as well as investment earnings due to increased levels of investable cash
resulting from the buildup of cash reserves that are required under the
Company's real estate mortgage investment conduit ("REMIC") financing.
Total operating expenses increased approximately $1.801 million. Increases
in property operating and maintenance, other operating expenses, real estate
taxes and depreciation and amortization were approximately $808,000, $265,000,
$204,000 and $323,000, respectively. Increases resulting from the acquisitions
of Clinton Pointe and Fairlane Meadows accounted for approximately $527,000,
$12,000, $382,000 and $367,000, respectively, which were partially offset due to
lower tax assessments on some Properties as a result of appeals and lower
amortization of leasing costs in 1996. Additional repairs and maintenance
performed at some of the Properties also contributed to the increase in property
operating and maintenance. General and administrative expenses increased
approximately $201,000, primarily due to increases in payroll and state income
and franchise taxes as well as professional and other fees related to the
administration of the Company's REMIC financing.
Interest expense, including related amortization of deferred financing
costs, increased approximately $2.066 million. The increase is due primarily to
increased debt levels from 1995 offset by interest rate reductions and decreases
attributable to conversions of $2.510 million aggregate principal amount of the
Company's 9.5% subordinated convertible debentures into shares of common stock,
which occurred during 1995. The debenture conversions accounted for a net
decrease in interest expense of approximately $112,000.
26
<PAGE> 28
The conversion of the Company's acquisition line of credit to the Securitized
Mortgage Loan at more favorable rates, coupled with additional borrowings
thereunder accounted for an increase of approximately $705,000, while interest
on a $12.45 million mortgage utilized for the acquisition of Fairlane Meadows
increased approximately $717,000. Increase in amortization of deferred financing
costs of approximately $756,000, related primarily to the Securitized Mortgage
Loan and the Fairlane Meadows mortgage, comprised the balance of the increase
from 1995.
Overall, net income decreased $1.151 million primarily as a result of
increases in non-cash expenses such as depreciation and amortization of
approximately $323,000 and amortization of deferred financing costs of $756,000.
Year 2000 Date Conversion
Certain computer systems that have time-sensitive programs may not properly
recognize the year 2000 which could result in major system failures or
miscalculations. The Company has performed an inquiry of its major software
vendors as to the likelihood of such a problem existing in the software products
which the Company utilizes. Based on such inquiry, the Company does not believe
that a year 2000 problem exists within its system or that any such problem that
may arise would have a material impact on the Company's operations. The Company
has not assessed the impact of any year 2000 problem within outside parties such
as vendors or tenants.
Funds From Operations
Management considers Funds From Operations to be an appropriate measure of
performance of an equity real estate investment trust. The Company calculates
Funds From Operations as net income or (loss) excluding gains and losses from
sales of property, further adjusted for certain non-cash items including
depreciation and amortization and amortization of deferred financing costs
included in interest expense. It is the opinion of management that reduction for
or inclusion of these items is not meaningful in evaluating income-producing
real estate which, in general, has historically not depreciated. Funds From
Operations does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not necessarily
indicative of cash available to fund cash needs, including distributions. Funds
From Operations should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flow as a measure of liquidity or the ability to pay distributions but rather as
a supplemental tool to be used in conjunction with these factors in analyzing
the Company's overall performance.
The Company is aware that there are variations between companies in the
REIT industry as to how Funds From Operations is calculated. In 1995, the
National Association of Real Estate Investment Trusts ("NAREIT") issued an
opinion paper (the "White Paper") clarifying the definitions of certain
components of Funds From Operations. The primary differences between the method
in which the Company reports Funds From Operations and the White Paper
definition is in the treatment of amortization of deferred financing costs and
certain depreciation expense.
27
<PAGE> 29
The following table shows the components that comprise the Company's Funds
From Operations for the quarters ended March 31, 1998 and 1997 and each of the
three years in the period ended December 31, 1997. Data for the years ended
December 31, 1996 and 1995 has been restated to conform with the current
presentation.
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- --------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss)................................... $ 299 $ (7) $ 543 $ 599 $1,750
Depreciation and Amortization:
Depreciation of buildings and improvements........ 1,251 1,209 4,845 4,766 4,333
Amortization of tenant allowances and
improvements................................... 29 26 97 46 65
Amortization of leasing costs..................... 28 23 96 56 163
------ ------ ------ ------ ------
"White Paper" Funds From Operations................. 1,607 1,251 5,581 5,467 6,311
Depreciation of furniture, equipment and leasehold
improvements...................................... 2 8 30 52 36
Amortization of deferred financing costs included in
interest expense:
Mortgages......................................... 363 294 1,271 1,228 461
Convertible debt.................................. 84 88 349 353 363
------ ------ ------ ------ ------
Funds From Operations............................... $2,056 $1,641 $7,231 $7,100 $7,171
====== ====== ====== ====== ======
ADDITIONAL INFORMATION
Weighted average shares outstanding:
Basic............................................. 3,784 3,464 3,546 3,464 3,547
====== ====== ====== ====== ======
Shares issuable upon debt conversions............. 4,877 5,193 5,113 5,193 5,303
====== ====== ====== ====== ======
Convertible debt interest, excluding amortization of
deferred financing costs.......................... $1,896 2,029 $7,916 $8,117 $8,223
====== ====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company is authorized to repurchase up to 755,000 shares of its Common
Stock under a plan approved by its Board of Directors in January 1995. Since
inception of the plan, the Company has repurchased 468,000 shares at a cost of
approximately $6.168 million or an average cost of $13.18 per share. The Company
does not intend to purchase any shares of Common Stock at the current price.
The Company has a $63 million loan (the "Securitized Mortgage Loan")
outstanding which is administered under a REMIC. Payments of interest only are
due monthly through the maturity date of August 10, 2002. Certificates issued by
the REMIC trust carry ratings from "AAA" to "A" by both Fitch Investors
Services, Inc. and Duff & Phelps Credit Rating Co. Under the loan agreement, the
Company is also required to fund certain reserves on a monthly basis and request
disbursement of funds as certain requirements are met. The Capital
Improvements/Replacement Reserve requires an annual deposit (funded monthly)
equal to $0.20 per qualifying square foot as defined in the loan agreement or
approximately $575,000 per year. The Basic Carrying Cost Reserve which is
utilized to pay real estate taxes, ground lease payments and insurance payments
related to the Properties which collateralize the loan requires a monthly
deposit equal to one-twelfth of the estimated annual cost of these expenses
which is estimated to be approximately $1.3 million in 1998.
An additional provision in the agreement provides that in the event that
the long-term debt rating of either of the two major tenants of the Properties,
Kmart or Wal-Mart, is downgraded to "BB+" or lower, the Company will be required
to maintain an additional amount in the Basic Carrying Cost Reserve equal to 1/4
of the applicable real estate tax obligation borne by those tenants. In January
1996, the long-term debt rating of Kmart was lowered to "BB" and, accordingly,
the Company was required to make an additional deposit to the Basic Carrying
Cost account of $561,000.
28
<PAGE> 30
In connection with the Securitized Mortgage Loan, the Company entered into
two interest rate cap agreements which effectively fix the overall rate of
interest on the loan at 7.57% through February 10, 2002; thereafter, the
interest rate on $42 million of the mortgage loans converts to a variable rate
which is capped at 8.75% through the end of the term. While the Company has not
yet decided how it will fund the repayment of the Securitized Mortgage Loan upon
maturity, possible sources include additional public offerings of equity and/or
debt, refinancing with conventional fixed rate debt instruments or the issuance
of additional secured or unsecured debt obligations.
In September 1995, the Company reached an agreement with its largest
tenant, Kmart, regarding several stores within its portfolio. Under the
agreement, the Company received a cash payment on October 31, 1995 of $2.56
million as consideration for the termination of leases on five stores previously
closed by Kmart. In addition, the agreement (i) provides that the Company assume
leases at three locations that were subleased by Kmart; (ii) amends certain
lease provisions on four other Properties leased by Kmart; and (iii) allows the
Company to develop outlots at seven Kmart properties and retain all revenue
generated from these outlots. The cash payment has been recorded as deferred
income and is being amortized as income on a straight-line basis over a six-year
period which represents the weighted average remaining base term of the leases
involved. Revenue recognized under the agreement was $428,000 during each of
1997 and 1996 and $71,000 during 1995.
The Company has re-leased two of the five closed stores on terms which
approximate the annual revenue received under the previous leases with Kmart,
and intends to re-lease the remaining three stores. The Company has also leased
three of the outlots and intends to develop and lease the remaining outlots. It
is possible that the Company may be unable to re-lease the remaining stores or
develop and lease the remaining outlots within the next several years. Such loss
of revenue may have an affect on the Company's future cash flows and results of
operations.
In order to fund its commitments and other potential uses of cash discussed
below, the Company obtained the Greenwich Capital Line, a $25 million secured
line of credit, in November 1997. The loan is secured by separate
cross-collateralized and cross-defaulted mortgages or deeds of trust on 16
Properties owned by a wholly owned subsidiary, Malan Revolver, Inc. The
Greenwich Capital Line has a two-year term, which may be extended for a period
of one year and can be expanded up to $50 million for additional acquisitions.
The facility carries an interest rate of London Interbank Offered Rate ("LIBOR")
plus 150 basis points. Payments of interest only are due monthly. At May 29,
1998, $1.68 million was available for borrowing under the facility and $19.05
million was outstanding.
In January 1997 the Company refinanced certain bank debt with an $11.2
million loan with Daiwa Finance Corporation ("Daiwa"). The Daiwa loan is
collateralized by Fairlane Meadows and contained an earn-out provision whereby
the property could be revalued and the loan increased if the revised valuation
supported such an increase. In December 1997, pursuant to the earn-out
provision, the Company received an additional $1.67 million from Daiwa and the
loan was increased to $12.796 million. Current terms of the loan call for
monthly payments totaling $96,000 consisting of interest at the rate of 8.18%
per annum and principal amortized over a 30 year life. Real estate tax payments
and an annual replacement reserve of $32,000 are required to be escrowed
monthly. The loan is due in full on February 1, 2007, at which time a balloon
payment of approximately $11.4 million will be due.
The Company has a line of credit with First Chicago NBD totaling $4.5
million. The line is collateralized by the Company's interest in Orchard-14
Shopping Center in Farmington Hills, Michigan and is subject to certain other
restrictions as to its use. The line matures on March 31, 1999. Payments of
interest only at LIBOR plus 200 basis points or in certain instances, the bank's
prime rate are due monthly until maturity. As of May 29, 1998 there was $1.0
million outstanding under the line.
In November 1997, the Company acquired a 42,000 square foot, 12-plex
theater complex in Lawrence, Kansas under a sale and leaseback agreement with an
existing tenant. The total cost of the theater was approximately $4.2 million
which was funded out of proceeds from the Greenwich Capital Line. The lease is
for a twenty-year term at a base rent of $587,000 per year, increasing to
$629,000 after ten years, and requires payment of all real estate taxes and
operating expenses by the tenant.
29
<PAGE> 31
In July 1997, the Company signed an agreement with Cinemark USA
("Cinemark") to construct a 60,000 square foot, 17-plex theater complex on its
property in North Aurora, Illinois. Once completed, the Company will provide a
construction allowance to Cinemark of $65 per square foot or approximately $3.9
million. Cinemark will subsequently ground lease the property from the Company
for a base term of twenty years with annual rent of approximately $746,000, plus
reimbursement of real estate taxes and operating costs. The site had previously
been leased to Kmart under an agreement which expired March 31, 1997 that had
provided approximately $39,000 and $126,000 in net cash flow during calendar
years 1997 and 1996, respectively. Construction of the theater began in October
1997 and is anticipated to be completed in July 1998. Total costs of the
development to the Company are estimated to be approximately $4.3 million and
are anticipated to be funded out of proceeds from the Greenwich Capital Line.
On December 1, 1995, the Company's lease with Builders Square at its
Melrose Park, Illinois property was terminated. On an annual basis, revenues
from this lease were approximately $650,000. In 1997 and 1996, the net decreases
in revenues from 1995 resulting from the termination were approximately $537,000
and $347,000, respectively. The Company has entered into a separate agreement
with Cinemark to construct a 58,000 square foot, 10-plex theater complex on the
property. Construction was originally anticipated to begin in the second quarter
1997 and to be completed in the first quarter 1998, however the project
commencement date was delayed until February 1998 and completion is now
anticipated to take place in November 1998. Once completed, the Company will
provide a construction allowance of $65 per square foot to Cinemark who will
then ground lease the property for a term of twenty years with annual rent of
approximately $963,000 plus reimbursement of real estate taxes and operating
costs. Total costs of the development are estimated to be approximately $4.2
million and are anticipated to be funded out of proceeds from the Greenwich
Capital Line.
The Company has outstanding as of December 31, 1997 and 1996 $56.680
million and $61.285 million, respectively, in convertible debentures and $27
million in convertible notes. The debentures are 10-year unsecured general
obligations of the Company due July 15, 2004, have a coupon rate of interest of
9.5% per annum, payable semiannually and carry a rating of B3 from Moody's
Investors Services, Inc. The debentures are convertible, at anytime after
issuance and prior to maturity into shares of Common Stock at the conversion
price of $17 per share subject to adjustment under certain conditions. The
debentures are not redeemable by the Company prior to July 15, 2001, except for
certain reasons intended to protect the Company's status as a REIT. During 1997,
$4.605 million aggregate principal of debentures was converted into 270,878
shares of Common Stock.
The convertible notes are nine-year general obligations due July 15, 2003
secured by a first mortgage on the Bricktown Square Shopping Center and bear
interest at the rate of 8.5% per annum, payable semiannually and are convertible
into shares of Common Stock at any time after June 24, 2002 at a conversion
price of $17 per share. Prior to this date, the holder may also demand
conversion of limited quantities of the notes subject to certain timing
restrictions. None of the notes have been converted to date.
The Company is currently redeveloping its existing retail center in
Lawrence, Kansas. In addition to expansion and improvement of the existing Kmart
store, the Company intends to add approximately 150,000 square feet of new
retail space. Total cost of the redevelopment project to the Company is
anticipated to be approximately $9 million including land costs. In order to
facilitate the additional space, the Company purchased approximately 9 acres of
land in November 1997 for $2.9 million which was funded out of proceeds from the
Greenwich Capital Line.
In February 1998, the Company acquired the Westland Shopping Center in
Westland, Michigan for $7.925 million. Terms of the agreement included
assumption of a $5.9 million, 8.02% mortgage with Wells Fargo Bank and a cash
payment of $2.025 million, which was funded out of proceeds from the Greenwich
Capital Line. The mortgage calls for monthly payments of interest and principal
amortized over a 30-year life and is due in full in November 2007. Net operating
income from the 85,000 square foot center, which has Dick's Sporting Goods and
MedMax, Inc. as its anchor tenants, is anticipated to be approximately $893,000
annually.
The Company has been informed by Kmart that it will not renew its lease at
the Company's Gary, Indiana shopping center which expires on September 30, 1998.
Annual revenues under this lease are
30
<PAGE> 32
approximately $257,000. Kmart closed this store in 1995 and subsequently sublet
the building to a non-retail user. The Company is currently negotiating with the
sublessee to either re-lease the building or acquire the entire property and is
also marketing the property in an attempt to obtain other potential tenants
and/or purchasers. It is possible that the Company may be unable to lease or
sell the property or that revenues generated from any lease or sale may be less
than that currently received from Kmart. If such events occur, future cash flows
may be impacted.
The Company incurs capital expenditures in the ordinary course of business
in order to maintain the Properties. Such capital expenditures typically include
roof, parking lot and other structural repairs, some of which are reimbursed by
tenants. In 1997, the Company spent approximately $1 million for capital
expenditures funded primarily out of the Capital Improvement/Replacement Reserve
required for the Company's Securitized Mortgage Loan financing and partially
from operating cash flows. The Company anticipates spending approximately $1.1
million for capital expenditures in 1998, also to be funded from similar
sources.
Occasionally it is necessary for the Company to provide inducements such as
building allowances or space improvements and/or to pay leasing commissions to
outside brokers in order to procure new tenants or renegotiate expiring leases
with current tenants. The total cost of these expenditures in 1997 was
approximately $501,000. These expenditures are generally funded by operating
cash flows and increased revenues resulting from such expenditures. In 1998, the
Company anticipates spending approximately $242,000 on such expenditures.
The Company has entered into the following commitments as of May 29, 1998:
<TABLE>
<CAPTION>
ANTICIPATED
APPROXIMATE FUNDING
AMOUNT DATE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Payment of tenant construction allowance on 17-plex theater
complex -- North Aurora, IL............................... $ 3,835 July 1998
Replacement of roofs on two retail buildings................ 237 July 1998
Redevelopment of existing retail property -- Lawrence, KS... 1,454(1) June 1998-
October 1998
Payment of tenant construction allowance on 10-plex theater
complex -- Melrose Park, IL............................... 3,773 November 1998
Acquisition of community shopping center in Decatur,
Illinois.................................................. 4,230(2) November 1998
-------
Total.................................................. $13,529
=======
</TABLE>
- -------------------------
(1) Contracts awarded as of May 29, 1998.
(2) Pursuant to Agreement of Sale and Purchase dated May 6, 1998 with Sandor
Development Company, as agent for various related entities.
In addition to these commitments and other potential uses of cash discussed
above, several other new developments and redevelopments are being contemplated
by the Company and may be completed within the next year. It is anticipated that
the additional revenue generated by these projects, as well as the Company's
existing equity in each, will create sufficient value so that each project will
fully fund itself using property specific financing and long-term loans. In
addition, as of May 29, 1998 the Company had approximately $1.68 million
available on the Greenwich Capital Line for further acquisitions, redevelopments
and working capital.
The Company anticipates that its cash flow from operations will generally
be sufficient to fund its cash needs for payment of expenses, capital
expenditures (other than acquisitions and redevelopments) and to maintain the
Company's current distribution policy. At May 29, 1998, the Company had
available borrowing of up to $3.5 million on the First Chicago NBD line of
credit for temporary working capital needs and it is anticipated that the
Company will extend this line beyond it current expiration date at an increased
amount.
31
<PAGE> 33
The Company intends to enter into other secured and unsecured financing
agreements in the future as the need arises.
The Company's major tenant, Kmart, accounted for approximately 39.0% of its
gross revenue and 39.4% of its minimum rent in 1997. Since its IPO, the Company
has substantially reduced its exposure to Kmart through acquisitions and
redevelopments of Properties, lease termination agreements with Kmart and the
assumption of certain Kmart sublease agreements. At the IPO, Kmart accounted for
approximately 59.6% of the Company's annualized base rent.
On May 27, 1998, Malan Midwest, L.L.C., a limited liability company
wholly-owned by the Company, entered into a Loan Agreement with Bloomfield
Acceptance Company, L.L.C. in connection with the Sandor Acquisition. See
"Recent Developments". Pursuant to the Loan Agreement, the Company borrowed $18
million to pay a portion of the purchase price of the Sandor Acquisition. The
Loan Agreement provides for payments of principal and interest based on a 30
year amortization schedule with a final payment of principal and interest of
approximately $13.5 million due in 15 years.
Each of the above statements regarding future revenues or expenses may be a
"forward looking statement" within the meaning of the Securities Exchange Act of
1934. Such statements are subject to important factors that could cause actual
results to differ materially from those in the forward looking statement,
including the factors set forth in the Management's Discussion and Analysis of
Financial Condition and Results of Operations.
INFLATION
The Company's long-term leases contain provisions to mitigate the adverse
impact of inflation on its results from operations. Such provisions include
clauses entitling the Company to receive (i) scheduled base rent increases and
(ii) percentage rents based upon tenants' gross sales, which generally increase
as prices rise. In addition, many of the Company's non-anchor leases are for
terms of less than ten years, which permits the Company to seek increases in
rents upon re-rental at then current market rates if rents provided in the
expiring leases are below then existing market rates. Most of the Company's
leases require tenants to pay a share of operating expenses, including common
area maintenance, real estate taxes, insurance and utilities, thereby reducing
the Company's exposure to increases in costs and operating expenses resulting
from inflation.
BUSINESS AND PROPERTIES
THE COMPANY
The Company is a self-administered, self-managed real estate investment
trust which owns, acquires, develops, redevelops, manages and operates
properties which are leased primarily to national and regional retail companies.
The Properties are typically located in select geographic markets with an
emphasis on small to medium-sized communities where the Properties can be
positioned among the leading centers in their respective trade areas. At
December 31, 1997, the Company had 53 properties located in 9 states, consisting
of 26 community shopping centers, 26 freestanding stores and 1 entertainment
facility and containing an aggregate of approximately 5.7 million square feet of
GLA. On February 23, 1998 the Company acquired a community shopping center in
Westland, Michigan which contains an aggregate of approximately 85,000 square
feet of GLA. In addition, on May 29, 1998, the Company acquired twelve community
shopping centers which contain an aggregate of approximately 328,000 square feet
of GLA. Currently, the Company's portfolio consists of 66 Properties located in
10 states consisting of 39 community shopping centers, 24 freestanding stores
and 3 entertainment facilities and contains an aggregate of approximately 6.1
million square feet of GLA. An entertainment facility consists of a multi-screen
movie theater with stadium seating, digital sound and the latest concepts in
food concession. As of December 31, 1997, 93.3% of GLA (95.7% excluding the
Properties being redeveloped) in the portfolio was leased and 93.7% of the
Company's annualized base rent was attributable to national and regional
retailers. At December 31, 1997, Kmart Corporation ("Kmart") and Wal-Mart
Corporation ("Wal-Mart") represented 35.7% and 6.6%, respectively, of annualized
base rent and leased 54.0% and 7.1%, respectively, of the Company's GLA.
32
<PAGE> 34
From 1966 to 1985, the Company specialized in building and managing
properties to suit for national and regional retailers who had signed long-term
leases prior to commencement of construction. The Properties were initially
owned by affiliates of the Company and subsequently by third party owners. Prior
to the IPO, the Company managed these Properties. In 1981, Anthony S. Gramer,
President and Chief Executive Officer, joined the Company and in 1986 he
acquired the Company from its original owners. The Company became a REIT in June
1994 and continued to expand the retail property business previously managed by
the Company. The Company believes that this strategy of developing properties
based on executed long-term leases primarily with national and regional retail
tenants provides the shareholders with a predictable source of income and also
provides future opportunities for development of additional properties at
attractive returns on investment, without the lease-up risks inherent in
speculative development.
The Company is one of the original developers of properties for Kmart and
ranks among the leading operators of shopping centers in the United States.
Since its inception in 1966, the Company has developed or redeveloped a total of
39 community shopping centers, 76 freestanding stores, and one regional enclosed
mall, totaling more than 14 million square feet of GLA. In connection with the
IPO, the Company acquired 45 income-producing retail properties with a GLA of
4.7 million square feet, all of which were either developed or redeveloped, and
subsequently managed, by the Company.
Recent Developments:
- In the Sandor Acquisition, the Company acquired twelve community
shopping centers located in: Indiana (3), Michigan (3), Illinois (2),
Kansas (2), Minnesota (1) and Ohio (1) for $29.5 million. These
Properties have Maurice's, Fashion Bug and Dollar Tree as major
tenants, contain a total of over 328,000 square feet of GLA and are
anchored by a Wal-Mart (each Wal-Mart store and its underlying pad are
owned and managed by an independent third party). At May 29, 1998,
94.8% of the GLA in the Sandor Acquisition was leased. In addition,
pursuant to the Sandor Acquisition purchase agreement, the Company
agreed to acquire a community shopping center located in Decatur,
Illinois for $4.2 million that contains over 40,000 square feet of GLA
and has Wal-Mart and Sam's Club as anchor tenants (the stores and
their underlying pads are owned and managed by independent third
parties). The acquisition of the Decatur, Illinois property is
scheduled to close in November 1998 after the seller completes a
redevelopment of the center.
- In the Westland Acquisition, the Company acquired a community shopping
center in Westland, Michigan for $7.9 million. This center has Dick's
Sporting Goods and MedMax as its major tenants and contains over
85,000 square feet of GLA. At May 29, 1998, 100% of the GLA of the
community shopping center was leased.
Also, since the IPO, the Company has:
- Acquired the following 8 Properties:
(i) Five community shopping centers in Indiana (3), Illinois (1) and
Ohio (1) which have Wal-Mart as the major tenant and contain over
665,000 square feet of GLA;
(ii) A community shopping center in Dearborn, Michigan which has Best
Buy and Kids "R" Us, as major tenants, contains over 137,000
square feet of GLA and is also anchored by Mervyn's and Target
(which own their stores and underlying pads);
(iii) A community shopping center in Clinton Township, Michigan which
has Office Max and Sports Authority as major tenants, contains
over 135,000 square feet of GLA and is also anchored by Target
(which owns its store and underlying pad); and
(iv) A 12-plex entertainment facility in Lawrence, Kansas which is
leased to Hollywood Theaters under a sale-leaseback agreement
and contains over 42,000 square feet of GLA.
33
<PAGE> 35
- Begun the redevelopment of two of the Company's freestanding stores,
which were previously anchored by Kmart, into entertainment facilities
which are scheduled to be completed in 1998. These facilities contain,
in the aggregate, over 117,000 square feet of GLA.
- Begun the redevelopment and expansion of an existing shopping center
anchored by Kmart in Lawrence, Kansas. The expansion will add a Kohl's
Department Store as an anchor tenant as well as other national and
regional retailers. The renovated shopping center will contain over
255,000 square feet of GLA.
- Diversified the tenant base and reduced the percentage of annualized
base rent received from Kmart to 35.7% as of December 31, 1997 from
59.6% at the IPO.
- Continued to operate the Properties at occupancy rates in excess of
93.3% with minimal tenant defaults.
The Company's three senior executives, Anthony S. Gramer -- President and
Chief Executive Officer, Michael K. Kaline -- Vice President, and Elliott J.
Broderick -- Chief Accounting Officer, have been actively involved in the
management, leasing, acquisition, development and redevelopment of shopping
centers, freestanding stores and entertainment facilities, including all of the
Properties, and collectively have over 50 years of experience in the real estate
industry.
OBJECTIVES AND STRATEGIES
Objectives
The Company's primary objectives are (i) to realize steady and predictable
cash flows through the ownership of high quality properties leased primarily to
good credit quality national and regional retailers, (ii) to increase Funds From
Operations per share through the development, redevelopment or acquisition of
additional properties, (iii) to have leases with national and regional retailers
in place prior to development of any property, (iv) to develop vacant parcels
adjacent to existing Properties and (v) to structure financing arrangements that
are beneficial to the Company's long-term growth objectives. The Company
presently intends to achieve these objectives by implementing the growth,
operating and financing strategies outlined below.
Growth, Operating and Financing Strategies
In seeking to attain these objectives, the Company has applied and intends
to continue to apply the same strategies that have been its guiding principles
since the Company's inception. These strategies include the following:
- Developing or acquiring each property with the objective of leasing it to
good credit quality national or regional retailers and holding it for
long-term investment value.
- Developing or acquiring properties in what the Company considers to be
attractive long-term locations. Such locations typically have (i)
convenient access to transportation arteries with a traffic count that is
higher than average for the local market, (ii) concentrations of other
retail properties and (iii) demographic characteristics which are
attractive to the retail tenant which will lease the property upon
completion.
- Generally, purchasing land and beginning development of a property only
upon the execution of a lease or leases with a national or regional
retailer or retailers on terms which provide a return on estimated cost
that is attractive relative to the Company's cost of capital.
- Directing all aspects of development and redevelopment, including design,
construction, leasing and management. Property management and leasing
activities are handled directly by Company personnel. The Company
believes that this approach to development and management enables it to
operate efficiently and enhances the ability of the Company to develop
and maintain assets of high construction quality which are designed,
leased and maintained to maximize long-term value.
34
<PAGE> 36
- Developing vacant parcels that are adjacent to some of the Properties and
outlots on existing Properties to enhance the value of the Properties as
well as the cash flow of the Company.
- Locking in the Company's returns on investment in Properties through the
use of intermediate to long-term fixed rate financing alternatives.
The Company believes that the relationships established by management with
national and regional retailers as well as the financing relationships
management has developed with lenders provide it with an advantage in achieving
its objectives.
PROPERTIES
The 66 Properties include 39 community shopping centers, 24 freestanding
stores and 3 entertainment facilities (2 of which are under redevelopment) and
contain an aggregate of approximately 6.1 million square feet of GLA. One of the
community shopping centers is being redeveloped and expanded. The Company
developed 45 of the 66 Properties and all of the Properties are either owned in
fee or held pursuant to long term ground leases. The Properties are designed to
meet the needs of the surrounding local communities and are anchored by national
and regional credit tenants who offer a broad range of discount consumer goods.
The Properties are located throughout 10 states including Illinois (15), Kansas
(14), Wisconsin (11), Indiana (9), Michigan (7), Missouri (5), Ohio (2),
California (1), Maryland (1) and Minnesota (1). The majority of the Properties
are situated in small to medium-sized communities and typically are considered
to be among the leading community shopping centers in their respective trade
areas. As of December 31, 1997, the Properties were 93.3% leased (95.7%
excluding Properties being redeveloped ).
LOCATIONS OF THE PROPERTIES(1)
The following table sets forth the number of Properties, the GLA of the
Properties and the percentage of GLA leased, as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER TOTAL GROSS PERCENT OF
OF LEASABLE AREA GLA LEASED AS OF
STATE PROPERTIES (SQ. FT.) DECEMBER 31, 1997
- ----- ---------- ------------- -----------------
<S> <C> <C> <C>
Illinois............................................... 13 1,400,743 88.9%
Kansas................................................. 12 755,360 83.0
Wisconsin.............................................. 11 1,431,312 98.2
Indiana................................................ 6 809,407 94.6
Missouri............................................... 5 519,277 98.7
Michigan............................................... 3 412,508 97.2
California............................................. 1 94,282 100.0
Maryland............................................... 1 84,180 100.0
Ohio................................................... 1 145,607 97.4
-- ---------
Total................................................ 53 5,652,676 93.3%
== =========
</TABLE>
- -------------------------
(1) The Sandor Acquisition and the Westland Acquisition occurred after December
31, 1997; thus, the effect of these acquisitions is not included in the
table. See "Recent Developments."
35
<PAGE> 37
ANNUALIZED BASE RENT OF THE PROPERTIES(1)
The following is a breakdown of annualized base rent as of December 31,
1997 for the Properties by type of tenant:
<TABLE>
<CAPTION>
ANNUALIZED PERCENT OF TOTAL
BASE RENT AS OF ANNUALIZED BASE RENT AS OF
TYPE OF TENANT DECEMBER 31, 1997(2) DECEMBER 31, 1997
- -------------- -------------------- --------------------------
<S> <C> <C>
National............................................ $19,964,000 82.4%
Regional............................................ 2,744,000 11.3
Local............................................... 1,516,000 6.3
----------- -----
Total............................................... $24,224,000 100.0%
=========== =====
</TABLE>
- -------------------------
(1) The Sandor Acquisition and the Westland Acquisition occurred after December
31, 1997; thus, the effect of these acquisitions is not included in the
table. See "Recent Developments."
(2) "Annualized Base Rent" of the Company as of December 31, 1997 is determined
by multiplying by 12 the monthly rent as of that date, but excluding from
the monthly rent (i) percentage rents, (ii) additional rent payable by
tenants such as common area maintenance, real estate taxes and other expense
reimbursements and (iii) future contractual rent increases.
36
<PAGE> 38
SUMMARY OF PROPERTIES
The following table sets forth, on a property-by-property basis, certain
summary information regarding the Properties:
COMMUNITY SHOPPING CENTERS(5)
<TABLE>
<CAPTION>
OWNERSHIP GROSS TOTAL AVERAGE
INTEREST YEAR LEASABLE ANNUALIZED BASE ANNUAL
(EXPIRATION DEVELOPED/ LAND AREA AREA (GLA) BASE RENT PER PERCENTAGE
PROPERTY INCL. OPTIONS) RENOVATED (ACRES) (SQ. FT.) RENT(1) SQ. FT.(2) RENT(3)
-------- -------------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Bricktown Square............... Fee 1987 26.00 306,433 $ 3,359,000 $11.33 $ 33,000
Chicago, IL
Sherwood Plaza................. Fee 1975/1991 13.85 125,101 684,000 5.65 19,000
Springfield, IL
Woodriver Plaza................ Fee 1987 19.40 111,899 610,000 5.57 71,000
Woodriver, IL
Clifty Crossing................ Fee 1989 19.90 190,919 973,000 5.28 18,000
Columbus, IN
Miller Mall, Gary, IN.......... Ground Lease (2048) 1973 17.95 129,914 308,000 3.03
Broadway Center................ Fee 1974/1997 19.89 177,692 895,000 4.23 47,000
Merrillville, IN
Flatrock Village............... Fee 1988 14.00 73,608 290,000 4.07 4,000
Rushville, IN
Cherry Tree Plaza.............. Fee 1988 20.60 143,682 758,000 5.40 28,000
Washington, IN
Pine Ridge Plaza............... Fee 1974/1989 8.12 91,048 209,000 2.53 17,000
Lawrence, KS
Kmart Topeka, KS............... Ground Lease (2049) 1974 13.93 108,960 249,000 2.96 1,000
South City Center.............. Fee 1976 13.74 130,380 464,000 3.56 55,000
Wichita, KS
Orchard-14..................... Fee 1973/1997 11.49 139,670 618,000 4.67 2,000
Farmington Hills, MI
Clinton Pointe Shopping
Center....................... Fee 1992 11.72 135,330 1,352,000 9.99
Clinton Township, MI
The Shops at Fairlane
Meadows...................... Fee 1987 17.73 137,508 1,881,000 14.35 6,000
Dearborn, MI
<CAPTION>
PERCENT
LEASED ANCHOR TENANTS
OF (LEASE EXPIRATION/
PROPERTY GLA OPTION EXPIRATION)
-------- ------- ------------------
<S> <C> <C>
Bricktown Square............... 96.8% Toys "R" Us (2013/2038)
Chicago, IL Kids "R" Us (2014/2039)
Marshall's(2000/2015)
Sportmart(2003/2018)
Cineplex-Odeon(2008/2018)
Frank's Nursery(2009/2029)
Sherwood Plaza................. 96.8 Kmart (2011/2061)
Springfield, IL
Woodriver Plaza................ 97.8 Wal-Mart (2007/2037)
Woodriver, IL
Clifty Crossing................ 96.8 Wal-Mart (2009/2039)
Columbus, IN Jay C. Foods (2009/2034)
Miller Mall, Gary, IN.......... 82.4 Kmart (1998/2048)
Broadway Center................ 98.2 Kmart (2011/2061)
Merrillville, IN
Flatrock Village............... 94.7 Wal-Mart(2008/2038)
Rushville, IN
Cherry Tree Plaza.............. 94.9 Wal-Mart (2008/2038)
Washington, IN Jay C. Foods(2008/2033)
Pine Ridge Plaza............... 90.9 Kmart(2011/2061)
Lawrence, KS
Kmart Topeka, KS............... 77.3 Kmart(2011/2049)
South City Center.............. 100.0 Kmart(2011/2061)
Wichita, KS
Orchard-14..................... 93.7 Kmart(2011/2061)
Farmington Hills, MI
Clinton Pointe Shopping
Center....................... 100.0 Office Max(2007/2017)
Clinton Township, MI Sports Authority(2017/2067)
Target (4)
The Shops at Fairlane
Meadows...................... 98.0 Best Buy(2009/2024)
Dearborn, MI Kids "R" Us(2003/2018)
Target (4)
Mervyn's (4)
</TABLE>
(footnotes on next page)
37
<PAGE> 39
<TABLE>
<CAPTION>
OWNERSHIP GROSS TOTAL AVERAGE
INTEREST YEAR LEASABLE ANNUALIZED BASE ANNUAL
(EXPIRATION DEVELOPED/ LAND AREA AREA (GLA) BASE RENT PER PERCENTAGE
PROPERTY INCL. OPTIONS) RENOVATED (ACRES) (SQ. FT.) RENT(1) SQ. FT.(2) RENT(3)
-------- -------------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kmart Jefferson City, MO....... Fee 1973/1991 9.76 118,798 $ 280,000 $ 2.36 $ 43,000
Prairie View Plaza............. Ground Lease (2050) 1975/1992 3.24 104,490 380,000 3.80 57,000
Kansas City, MO
Levitz Furniture............... Fee 1977 14.89 117,255 563,000 4.88
Manchester, MO
Kmart Plaza.................... Fee 1978/1991 7.41 98,878 329,000 3.33 16,000
Springfield, MO
Shannon Station................ Fee 1989 20.20 145,607 718,000 5.10 4,000
Van Wert, OH
Kmart Plaza.................... Fee 1979 8.90 88,608 283,000 3.20
Ft. Atkinson, WI
Kmart Green Bay, WI............ Fee 1974/1992 11.59 118,988 321,000 2.70 13,000
County Fair Shopping Ctr....... Fee 1974/1991 10.50 152,165 519,000 2.82 43,000
Hales Corners, WI
Kmart Plaza.................... Fee 1973/1994 9.95 119,726 382,000 2.56 41,000
Kenosha, WI
Westland Plaza................. Fee 1978/1992 12.40 122,534 544,000 3.73 12,000
Madison, WI
Northway Mall.................. Ground Lease (2022) 1978/1994 21.63 288,245 1,011,000 3.41 96,000
Marshfield, WI
Kmart Stevens Point, WI........ Fee 1972/1990 8.00 109,197 213,000 1.95 27,000
------ --------- ----------- --------
TOTAL COMMUNITY SHOPPING
CENTERS.................. 366.79 3,586,635 $18,193,000 $653,000
====== ========= =========== ========
<CAPTION>
PERCENT
LEASED ANCHOR TENANTS
OF (LEASE EXPIRATION/
PROPERTY GLA OPTION EXPIRATION)
-------- ------- ------------------
<S> <C> <C>
Kmart Jefferson City, MO....... 100.0% Kmart(2011/2061)
Prairie View Plaza............. 95.2 Kmart(2011/2050)
Kansas City, MO
Levitz Furniture............... 98.3 Levitz Furniture(2004/2056)
Manchester, MO
Kmart Plaza.................... 100.0 Kmart(2011/2061)
Springfield, MO
Shannon Station................ 97.4 Wal-Mart(2009/2039)
Van Wert, OH
Kmart Plaza.................... 100.0 Kmart(2004/2054)
Ft. Atkinson, WI
Kmart Green Bay, WI............ 100.0 Kmart(1999/2049)
County Fair Shopping Ctr....... 93.0 Kmart(2011/2061)
Hales Corners, WI
Kmart Plaza.................... 100.0 Kmart(2011/2061)
Kenosha, WI
Westland Plaza................. 98.7 Kmart(2002/2053)
Madison, WI
Northway Mall.................. 95.1 Kmart(2011/2022)
Marshfield, WI J.C. Penney(1999/2019)
Younkers(2004/2019)
Kmart Stevens Point, WI........ 100.0 Kmart(2011/2061)
TOTAL COMMUNITY SHOPPING
CENTERS..................
</TABLE>
- -------------------------
(1) Total annualized base rents of the Company for leases signed as of December
31, 1997, excluding (i) percentage rents, (ii) additional amounts payable by
tenants such as common area maintenance, real estate taxes and other expense
reimbursements and (iii) future contractual rent escalations or cost of
living increases.
(2) Based upon leased and occupied space at December 31, 1997.
(3) Based on percentage rent income recognized in 1997.
(4) These stores and the underlying pads are owned directly by the tenants.
(5) Excludes the Sandor Acquisition and the Westland Acquisition.
38
<PAGE> 40
FREESTANDING STORES
<TABLE>
<CAPTION>
GROSS TOTAL AVERAGE
OWNERSHIP INTEREST YEAR LEASABLE ANNUALIZED BASE RENT ANNUAL
(EXPIRATION INCL. DEVELOPED/ LAND AREA AREA (GLA) BASE PER PERCENTAGE
PROPERTY OPTIONS) RENOVATED (ACRES) (SQ. FT.) RENT(1) SQ. FT.(2) RENT(3)
-------- ------------------ ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kmart Colma, CA........... Fee 1980/1991 8.29 94,282 $ 537,000 $5.70 $ 45,000
Kmart Chicago, IL......... Fee 1977 8.51 96,268 392,000 4.07 28,000
Kmart Fairview Hgts, IL... Ground Lease (2051) 1976/1992 12.65 96,268 296,000 3.08 24,000
Kmart Franklin Park, IL... Fee 1975 9.84 96,268 352,000 3.66
Kmart Lansing, IL......... Fee 1976/1992 10.48 96,268 449,000 4.66 32,000
Kmart Lincoln, IL......... Fee 1975 4.86 39,797
Kmart Loves Park, IL...... Ground Lease (2026) 1971/1991 12.50 106,084 288,000 1.86 1,000
Kmart New Lenox, IL....... Fee 1977 8.72 88,580 354,000 4.00 29,000
Kmart Rockford, IL........ Fee 1971/1991 10.70 110,471 292,000 1.61
Kmart Valparaiso, IN...... Ground Lease (2050) 1974/1990 9.61 93,592 265,000 2.09 35,000
Arkansas City, KS......... Fee 1976 4.41 39,797
Emporia, KS............... Fee 1976 6.55 39,797 99,000 2.49
Food Bonanza.............. Fee 1977/1991 5.60 39,797 117,000 2.94
Garden City, KS
Great Bend, KS............ Fee 1977 5.41 55,552
Orscheln Farm Supply...... Fee 1977 4.96 40,050 112,000 2.79
Hayes, KS
Food 4 Less............... Fee 1976/1990 4.12 39,797 111,000 2.80
Independence, KS
Standard Supply........... Fee 1977 4.57 40,279 85,000 2.10
Liberal, KS
Kmart Salina, KS.......... Fee 1978/1991 16.00 87,406 213,000 2.43 86,000
Kmart Forestville, MD..... Fee 1979 8.00 84,180 348,000 4.13
Kmart Cape Girardeau,
MO...................... Fee 1974/1991 5.68 79,856 169,000 2.11 36,000
Kmart Janesville, WI...... Fee 1968/1991 13.78 104,000 161,000 1.55 89,000
Kmart Madison, WI......... Fee 1968/1991 12.53 106,058 250,000 2.36 33,000
Kmart Milwaukee, WI....... Fee 1971 11.23 117,791 280,000 2.38
Kmart Oshkosh, WI......... Fee 1968/1992 10.00 104,000 161,000 1.55 76,000
------ --------- ---------- --------
TOTAL FREESTANDING
STORES.............. 209.00 1,896,238 $5,331,000 $514,000
====== ========= ========== ========
<CAPTION>
PERCENT ANCHOR TENANTS
LEASED (LEASE EXPIRATION/
PROPERTY OF GLA OPTION EXPIRATION)
-------- ------- ------------------
<S> <C> <C>
Kmart Colma, CA........... 100.0% Kmart (2011/2061)
Kmart Chicago, IL......... 100.0 Kmart (2011/2061)
Kmart Fairview Hgts, IL... 100.0 Kmart (2001/2051)
Kmart Franklin Park, IL... 100.0 Kmart (2011/2061)
Kmart Lansing, IL......... 100.0 Kmart (2011/2061)
Kmart Lincoln, IL......... (4)
Kmart Loves Park, IL...... 100.0 Kmart (2011/2026)
Kmart New Lenox, IL....... 100.0 Kmart (2011/2061)
Kmart Rockford, IL........ 100.0 Kmart (2011/2061)
Kmart Valparaiso, IN...... 100.0 Kmart (2011/2050)
Arkansas City, KS......... (4)
Emporia, KS............... 100.0 Big Lots (2002/2007)
Food Bonanza.............. 100.0 Food Bonanza (2002/2029)
Garden City, KS
Great Bend, KS............ (4)
Orscheln Farm Supply...... 100.0 Orscheln Farm Supply
Hayes, KS (2004/2014)
Food 4 Less............... 100.0 Food 4 Less (2001/2026)
Independence, KS
Standard Supply........... 100.0 Standard Supply (2003/2013)
Liberal, KS
Kmart Salina, KS.......... 100.0 Kmart (2011/2061)
Kmart Forestville, MD..... 100.0 Kmart (2011/2061)
Kmart Cape Girardeau,
MO...................... 100.0 Kmart (2011/2061)
Kmart Janesville, WI...... 100.0 Kmart (2003/2038)
Kmart Madison, WI......... 100.0 Kmart (2002/2022)
Kmart Milwaukee, WI....... 100.0 Kmart (2011/2061)
Kmart Oshkosh, WI......... 100.0 Kmart (2003/2038)
TOTAL FREESTANDING
STORES..............
</TABLE>
- -------------------------
(1) Total annualized base rents of the Company for leases signed as of December
31, 1997, excluding (i) percentage rents, (ii) additional amounts payable by
tenants such as common area maintenance, real estate taxes and other expense
reimbursements and (iii) future contractual rent escalations or cost of
living increases.
(2) Based upon leased and occupied space at December 31, 1997.
(3) Based on percentage rent income recognized in 1997.
(4) The leases on these stores were terminated effective November 1, 1995 as
part of an agreement with Kmart and these properties are currently vacant.
39
<PAGE> 41
ENTERTAINMENT FACILITIES
<TABLE>
<CAPTION>
GROSS AVERAGE
OWNERSHIP LEASABLE TOTAL BASE
INTEREST YEAR LAND AREA ANNUALIZED RENT PER ANNUAL
(EXPIRATION DEVELOPED/ AREA (GLA) BASE SQ. PERCENTAGE
PROPERTY INCL. OPTIONS) RENOVATED (ACRES) (SQ. FT.) RENT(1) FT.(2) RENT(3)
-------- -------------- ---------- ------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Melrose Park,IL............ Ground Lease (2048) (4) 10.90 122,450 $ 53,000 $ 2.05
North Aurora, IL........... Fee (4) 11.36 4,856 60,000 1.75 $ 10,000
Southwind Theater Lawrence,
KS....................... Fee 1997 7.89 42,497 587,000 13.81
------ --------- ----------- ----------
TOTAL ENTERTAINMENT
FACILITIES........... 30.15 169,803 700,000 10,000
------ --------- ----------- ----------
TOTAL(5)............... 605.94 5,652,676 $24,224,000 $1,177,000
====== ========= =========== ==========
<CAPTION>
PERCENT
LEASED ANCHOR TENANTS
OF (LEASE EXPIRATION/
PROPERTY GLA OPTION EXPIRATION)
-------- ------- ------------------
<S> <C> <C>
Melrose Park,IL............ 18.7% Cinemark USA(4)
North Aurora, IL........... 100.0 Cinemark USA(4)
Southwind Theater Lawrence,
KS....................... 100.0 Hollywood Theater (2017/2027)
TOTAL ENTERTAINMENT
FACILITIES...........
TOTAL(5)...............
</TABLE>
- -------------------------
(1) Total annualized base rents of the Company for leases signed as of December
31, 1997, excluding (i) percentage rents, (ii) additional amounts payable by
tenants such as common area maintenance, real estate taxes and other expense
reimbursements and (iii) future contractual rent escalations or cost of
living expenses.
(2) Based upon leased and occupied space at December 31, 1997.
(3) Based on percentage rent income recognized in 1997.
(4) These Properties are being redeveloped into multiplex theater complexes
under agreement with Cinemark USA. See section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" for further discussion.
(5) Excludes the Sandor Acquisition and the Westland Acquisition.
40
<PAGE> 42
RECENT COMMUNITY SHOPPING CENTER ACQUISITIONS
<TABLE>
<CAPTION>
OWNERSHIP GROSS TOTAL AVERAGE
INTEREST YEAR LEASABLE ANNUALIZED BASE ANNUAL
(EXPIRATION DEVELOPED/ LAND AREA AREA (GLA) BASE RENT PER PERCENTAGE
PROPERTY INCL. OPTIONS) RENOVATED (ACRES) (SQ. FT.) RENT(1) SQ. FT.(2) RENT(3)
-------- -------------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Westland Acquisition
Westland Shopping Center
Westland, MI............. Fee 1996 6.99 85,000 $ 893,000 $10.51
Sandor Acquisition
Wal-Mart Plaza
Champaigne, IL........... Fee 1994 1.00 11,458 127,000 11.08
Jacksonville, IL......... Fee 1995 6.89 52,880 498,000 9.42
Crawfordsville, IN....... Fee 1991/1996 11.32 25,750 213,000 10.34
Decatur, IN.............. Fee 1994/1997 5.80 36,300 321,000 9.21
Huntington, IN........... Fee 1995 1.00 12,485 120,000 9.61
Chanute, KS.............. Fee 1995 1.00 15,447 113,000 7.95
El Dorado, KS............ Fee 1996 1.70 20,000 162,000 9.64
Benton Harbor, MI........ Fee 1995 1.30 14,280 143,000 10.01
Owosso, MI............... Fee 1993/1996 10.00 60,324 535,000 8.87
Sturgis, MI.............. Fee 1994 1.00 12,000 123,000 10.25
Little Falls, MN......... Fee 1996 1.00 12,456 109,000 9.94
Mansfield, OH............ Fee 1993/1998 3.90 55,316 568,000 11.16
------ --------- ----------- ----------
TOTAL RECENT COMMUNITY
SHOPPING CENTER
ACQUISITIONS........ 52.90 413,696 $ 3,925,000
------ --------- ----------- ----------
GRAND TOTAL............ 658.84 6,066,372 $28,149,000 $1,177,000
====== ========= =========== ==========
<CAPTION>
PERCENT ANCHOR TENANTS
LEASED (LEASE EXPIRATION/
PROPERTY OF GLA OPTION EXPIRATION)
-------- ------- ------------------
<S> <C> <C>
Westland Acquisition
Westland Shopping Center
Westland, MI............. 100% Dick's Sporting Goods (2011)
Sandor Acquisition
Wal-Mart Plaza
Champaigne, IL........... 100 Wal-Mart(4)/Sam's(4)
Jacksonville, IL......... 100 Wal-Mart(4)/Country Market(4)
Crawfordsville, IN....... 80 Wal-Mart(4)
Decatur, IN.............. 96 Wal-Mart(4)
Huntington, IN........... 100 Wal-Mart(4)
Chanute, KS.............. 92 Wal-Mart(4)
El Dorado, KS............ 84 Wal-Mart(4)
Benton Harbor, MI........ 100 Wal-Mart(4)/Lowe's(4)
Owosso, MI............... 100 Wal-Mart(4)
Sturgis, MI.............. 100 Wal-Mart(4)
Little Falls, MN......... 88 Wal-Mart(4)
Mansfield, OH............ 92 Wal-Mart(4)
TOTAL RECENT COMMUNITY
SHOPPING CENTER
ACQUISITIONS........
GRAND TOTAL............
</TABLE>
- -------------------------
(1) Total annualized base rents of the Company for leases signed as of May 29,
1998, excluding (i) percentage rents, (ii) additional amounts payable by
tenants such as common area maintenance, real estate taxes and other expense
reimbursements and (iii) future contractual rent escalations or cost of
living increases.
(2) Based upon leased and occupied space at May 29, 1998.
(3) Based on percentage rent income recognized in 1997.
(4) These stores and the underlying pads are owned and managed by independent
third parties.
41
<PAGE> 43
MAJOR TENANTS
As one of the original developers of properties for Kmart and a leader in
the shopping center industry, the Company has established long-standing
relationships with Kmart and other national and regional retailers, many of
which lease space in the Properties.
Kmart
Kmart is one of the world's largest mass merchandise retailers. The
dominant portion of Kmart's operations is in a single industry: general
merchandise retailing. As of January 29, 1997, Kmart operated 2,134 discount
stores, including 96 Super Kmart centers.
Senior unsecured debt securities of Kmart were recently upgraded from Ba3
to Ba2 by Moody's Investor Services, Inc. (out of a range of Aaa (highest) to D)
and from BB- to BB by Standard & Poor's Corporation (out of a range of AAA
(highest) to D).
Kmart is the Company's most significant tenant and is currently leasing 33
Properties from the Company. These Properties represented 54.0% of the Company's
GLA and 35.7% of the Company's annualized base rent at December 31, 1997. At the
time of the IPO, Kmart represented 77.5% of the Company's GLA and 59.6% of the
Company's annualized base rent. Although the Company has a long standing
relationship with Kmart, it has actively sought to diversify its tenant base and
reduce the portion of its portfolio that is related to Kmart. These efforts have
successfully reduced Kmart's percentage of the Company's GLA and annualized base
rent since the IPO by approximately 30% and 40%, respectively.
Twenty-five of the 33 Kmart leased Properties have lease expirations in
2011 and options to extend the leases beyond this date. The Company has one
Property leased to Kmart for which the lease expires in September 1998. This
Property is located in Gary, Indiana and is currently sub-leased to a non-retail
user. Kmart has informed the Company that it will not renew this lease, however,
the Company is negotiating with the current sub-lessee regarding the purchase of
the Company's interest in the Property at the end of the lease.
In connection with its stated intention of reducing its concentration with
Kmart, the Company has taken a number of steps with Kmart intended to reduce the
risk and increase the stability of the Kmart portfolio. In late 1994, Kmart
announced a restructuring and store closing program. The Company initiated
discussions during 1995 with Kmart in connection with its restructuring and
store closing program. These discussions addressed Kmart stores in the Company's
portfolio that Kmart was interested in closing as well as other Properties under
lease to Kmart. The result of the discussions was an extensive, mutually
beneficial agreement affecting 16 of the Properties (the "Agreement"). The
principal terms of this Agreement are as follows:
(i) the Company terminated leases on 5 stores and received a cash payment
in October 1995 of $2.56 million (which represented approximately 75%
of the present value of the remaining lease payments on the 5
stores);
(ii) the Company assumed sub-leases at 3 locations at which Kmart was the
sub-lessor;
(iii) the Company amended certain lease provisions on 4 other Kmart
Properties to provide the Company with more favorable real estate tax
recovery terms; and
(iv) the Company received pre-approval to develop outlots at 7 Kmart
Properties and retain all of the revenue generated from these outlots.
Lease Terminations
The Agreement provided for the termination of 5 leases on the
Company's freestanding stores located in Arkansas City, Emporia, Great Bend
and Liberal, Kansas and in Lincoln, Illinois. These stores had been closed
previously by Kmart, but had remaining lease terms ranging from 4.5 to 7
years. In turn, the Company received a cash payment of $2.56 million which
represented approximately 75% of the net present value of the remaining
rental income for these 5 Properties. The Company has subsequently re-
leased 2 of the Properties, Liberal to Standard Supply in November 1995,
and Emporia to Consolidated
42
<PAGE> 44
Stores in November 1996, at rental rates slightly in excess of those under
the previous Kmart leases. The Company intends to re-lease the remaining 3
locations. The cash payment is being recognized as income on a straight
line basis over a 6 year period which represents the weighted average
remaining life of the terminated Kmart leases.
Subleased Stores
Kmart previously sublet stores in Garden City, Hayes and Independence,
Kansas to certain local and regional retail operators. The economic terms
of these subleases approximated the underlying leases which Kmart had with
the Company. Under the Agreement, the Company assumed these subleases from
Kmart and released Kmart from any further obligations thereunder.
Real Estate Tax Recoveries
Leases with Kmart at 4 of the Properties were gross leases whereby the
Company was responsible for payment of all real estate taxes. Under the
Agreement, these leases were amended to provide that Kmart pay the amount
by which the real estate taxes for the year exceeded any percentage rent
due for that year. This provision was phased in over a 2 year period, will
remain in place for the duration of each lease and will increase the
revenue of the Company.
Outlots
Under the Agreement, the Company acquired the right to, and obtained
pre-approval to, develop 7 outlots at existing Kmart stores. The Company
will receive all of the economic benefits and burdens of such outlots.
Three outlots have been developed to date, providing the Company with
$93,000 of incremental annualized revenue.
Wal-Mart
Wal-Mart, a chain of discount department stores, is America's largest
retailer measured by total revenues. During the fiscal year ended January 31,
1997, Wal-Mart had net sales of $105 billion. Domestically, at January 31, 1997,
Wal-Mart operated 1,960 stores.
Senior unsecured debt securities of Wal-Mart are rated Aa2 by Moody's
Investor Services, Inc. (out of a range of Aaa (highest) to D) and AA by
Standard & Poor's Corporation (out of a range of AAA (highest) to D). Wal-Mart's
commercial paper is rated P1 by Moody's Investor Services, Inc. (out of a range
of P1 (highest) to no rating) and A-1+ by Standard & Poor's Corporation (out of
a range of A-1+ (highest) to no rating.)
SUMMARY OF MAJOR TENANTS
The following table sets forth as of December 31, 1997, with respect to the
Properties leased to anchor and/or national tenants which individually accounted
for more than 1.0% of the Company's minimum rent, (i) the number of stores for
each such tenant, (ii) the amount of GLA leased by each such tenant, (iii) the
percentage of GLA which was leased by each such tenant, (iv) the 1997 gross
annual rent represented by each such tenant, (v) the percentage of the Company's
total 1997 gross annual rents which was represented by each such tenant, (vi)
the December 31, 1997 annualized base rent represented by each tenant and (vii)
the
43
<PAGE> 45
percentage of the Company's total December 31, 1997 annualized base rent which
was represented by each such tenant:
<TABLE>
<CAPTION>
PERCENTAGE OF
GLA GROSS PERCENTAGE OF TOTAL
NUMBER (SQUARE PERCENTAGE ANNUAL TOTAL GROSS ANNUALIZED ANNUALIZED
TENANT(1) OF STORES FEET) OF GLA RENT(2) ANNUAL RENT BASE RENT BASE RENT
- --------- --------- ------- ---------- ------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kmart................ 33 3,054,546 54.0% $ 9,470,000 37.5% $ 8,640,000 35.7%
Wal-Mart............. 5 400,602 7.1 1,688,000 6.7 1,598,000 6.6
Toys "R" Us.......... 3 85,535 1.5 823,000 3.3 823,000 3.4
Cineplex-Odeon....... 1 35,280 0.6 617,000 2.4 617,000 2.5
Hollywood Theater.... 1 42,497 0.8 587,000 2.3 587,000 2.4
Best Buy............. 1 36,586 0.6 485,000 1.9 485,000 2.0
Levitz............... 1 96,268 1.7 433,000 1.7 433,000 1.8
Jay C. Foods......... 2 72,171 1.3 370,000 1.5 370,000 1.5
Sports Authority..... 1 42,610 0.8 362,000 1.4 362,000 1.5
Sportmart(3)......... 1 36,495 0.6 356,000 1.4 356,000 1.5
1/2 Off Card Shop.... 2 26,475 0.5 307,000 1.2 307,000 1.3
Roundy's............. 1 52,477 0.9 289,000 1.1 289,000 1.2
-- --------- ---- ----------- ---- ----------- ----
TOTAL................ 52 3,981,542 70.4% $15,787,000 62.4% $14,867,000 61.4%
== ========= ==== =========== ==== =========== ====
</TABLE>
- -------------------------
(1) The Sandor Acquisition and the Westland Acquisition occurred after December
31, 1997; thus, the effect of these acquisitions is not included in the
table. See "Recent Developments."
(2) Gross annual rent represents annualized base rent at December 31, 1997 plus
percentage rents for the period ended December 31, 1997.
(3) Subsidiary of Dick's Sporting Goods.
TENANT LEASE EXPIRATIONS AND RENEWALS
The following table shows tenant lease expirations at the Properties
through the year 2003, assuming that none of the tenants exercises any renewal
option.
LEASE EXPIRATION SCHEDULE(1)
<TABLE>
<CAPTION>
ANNUALIZED 1997 BASE
GROSS LEASABLE AREA RENTAL INCOME(2)
LEASE NO. OF ----------------------- -----------------------
EXPIRATION LEASES APPROXIMATE PERCENT PERCENT
YEAR EXPIRING SQUARE FEET OF TOTAL AMOUNT OF TOTAL
---------- -------- ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
1998........................................ 41 280,581 5.0% $ 1,229,000 5.1%
1999........................................ 48 302,068 5.3 1,933,000 8.0
2000........................................ 44 133,384 2.4 1,455,000 6.0
2001........................................ 34 342,575 6.1 1,749,000 7.2
2002........................................ 34 521,595 9.2 2,263,000 9.3
2003........................................ 25 487,841 8.6 1,895,000 7.8
--- --------- ---- ----------- ----
Total through 2003.......................... 226 2,068,044 36.6% $10,524,000 43.4%
=== ========= ==== =========== ====
</TABLE>
- -------------------------
(1) The Sandor Acquisition and the Westland Acquisition occurred after December
31, 1997; thus, the effect of these acquisitions is not included in the
table. See "Recent Developments."
(2) Amounts are computed using annualized base rent at December 31, 1997 and do
not include future rent increases, if any.
44
<PAGE> 46
OPTIONS TO PURCHASE GRANTED TO CERTAIN TENANTS
Four of the Properties are subject to purchase options granted to certain
tenants as follows:
- The freestanding store in Milwaukee, Wisconsin is subject to a
purchase option at a fixed price of $1.4 million, exercisable at any
time after January 1, 1997, while the lease remains in effect. For
1997, $280,000 of rental income and $279,000 of net operating income
were attributable to this Property.
- The freestanding store in Rockford, Illinois is subject to a
purchase option at a fixed price of $1.3 million, exercisable at any
time after December 1, 1997, while the lease remains in effect. For
1997, $292,000 of rental income and $289,000 of net operating income
were attributable to this Property.
- A tenant which leases 20,000 square feet of GLA at the community
shopping center in Marshfield, Wisconsin has a purchase option for
its premises at a fixed price of $117,000, exercisable throughout
the term of its lease (which lease, including renewal options, will
terminate in November 2006). For 1997, $14,000 of rental income was
attributable to this tenant.
- The freestanding store in Liberal, Kansas is subject to a purchase
option at a fixed price of $325,000 upon expiration of the primary
term of the lease on April 30, 2003. For 1997, $89,000 of rental
income and $83,000 of net operating income were attributable to this
Property.
The Company believes that even if all of the purchase options are
exercised, such exercise will not have a material adverse effect upon the
operations of the Company or its ability to maintain its distribution policy. In
addition, if any purchase option is exercised, the Company intends to either
distribute the cash proceeds to its shareholders or reinvest the cash proceeds
in additional properties. No assurance can be given that such distribution or
reinvestment will occur.
RENTAL REVENUES
Substantially all of the income from the Properties consists of rent
received under long-term leases. In addition, the leases provide for payment
from tenants of a pro rata share of the real estate taxes, insurance, utilities
and common area maintenance of the Property ("expense reimbursements"). A
substantial number of leases at the Properties also provide for the payment of
percentage rents. Percentage rents represented 3.0% of the Company's total
rental revenue, or approximately $1.2 million, for the year ended December 31,
1997.
CAPITAL EXPENDITURES
The Properties are subject to regular physical maintenance and renovation
where necessary, to preserve and enhance their value. These projects usually
include renovating existing facades, installing uniform signage, repairing
roofs, resurfacing parking lots and increasing parking lot lighting. In addition
to repair and maintenance costs (which are expensed as incurred), the Company
has budgeted approximately $1.138 million (net of tenant recoveries) for capital
improvements to the Properties in 1998. In 1997, 1996 and 1995 the Company spent
$1.039 million, $1.261 million and $472,000, respectively, on capital
expenditures.
COMPETITION
All of the Properties are located in areas which have community shopping
centers and other retail facilities. Generally, there are other neighborhood and
community shopping centers within close proximity of a Property. The amount of
rentable retail space in an area could have a material adverse effect on the
amount of rent charged by the Company and on the Company's ability to rent
vacant space and/or renew leases. There are numerous commercial developers, real
estate companies, REITs and major retailers that compete with the Company in
seeking land for development, properties for acquisition and tenants for
properties, some of which may have greater financial and other resources than
the Company and may have operating or development experience greater than that
of the Company and its officers. There are numerous shopping facilities that
compete with the Properties in attracting retailers to lease space. In addition,
retailers at the Properties face
45
<PAGE> 47
increasing competition from outlet malls, discount shopping clubs, catalog
companies, direct mail and telemarketing.
EMPLOYEES
Virtually all operating and administrative functions of the Company,
including leasing, finance, accounting and data processing, are performed
in-house either by or under the supervision of the Company's executive officers.
The Company employs approximately 19 full-time persons at its corporate
headquarters in Michigan, and its relationship with all of its employees is
good.
None of the Company's executive officers intends, or will be permitted,
without the prior approval of the Board of Directors, to engage in, while he is
an officer or director of the Company (and for one year thereafter in Mr.
Gramer's case), the acquisition, development or management of commercial real
estate except through the Company.
LEGAL PROCEEDINGS
The Company is not presently involved in any litigation nor, to its
knowledge, is any litigation threatened against the Company or any of the
Properties, except for routine litigation arising in the ordinary course of
business which, in the opinion of the executive officers of the Company, would
not have a material adverse effect on the Company.
INSURANCE
The Company believes that the Properties are covered by adequate fire,
flood, earthquake, tornado and property insurance provided by reputable
companies and with commercially reasonable deductibles and limits. Such coverage
will also be obtained with respect to any additional properties acquired by the
Company in the future. The Company will maintain a blanket policy to cover all
of its properties with an insurance company or companies having an A.M. Best
rating of A+ or higher. The Company has obtained title insurance relating to the
Properties in an aggregate amount which the Company believes to be adequate to
protect the Company's interest in the Properties.
46
<PAGE> 48
MORTGAGE INDEBTEDNESS
The following table sets forth certain information regarding the Company's
debt outstanding as of May 29, 1998, and December 31, 1997 and 1996.
<TABLE>
<CAPTION>
BALANCE
----------------------------
MAY 29, DECEMBER 31,
-------- -----------------
MORTGAGES COLLATERAL INTEREST RATE MATURITY DATE 1998 1997 1996
--------- ---------- ------------- ------------- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Greenwich Capital Line
of Credit............ 16 Properties LIBOR + 150 Basis November 1999 $ 19,050 $ 4,700 $
Points
UDAG Loan.............. Bricktown Square 5% increasing to March 2023 8,048 8,097 8,193
9%
Securitized Mortgage
Loan................. 25 Properties 7.57%(1) August 2002 63,000 63,000 63,000
Daiwa Finance Corp. ... The Shops at 8.18% February 2007 12,742 12,788 12,450
Fairlane Meadows
First Chicago NBD Line
of Credit............ Orchard-14 LIBOR +200 March 1999 1,000
Shopping Center Basis Points
Bloomfield Acceptance
Company.............. 12 Properties 7.43% May 18,000
2013
Wells Fargo Bank....... Westland Shopping 8.02% November 2007 5,872
Center
-------- ------- -------
TOTAL MORTGAGES........ $127,712 $88,585 $83,643
======== ======= =======
Convertible
Debentures........... $ 55,004 $56,680 $61,285
None 9.5% July 2004 ======== ======= =======
Convertible Notes...... $ 27,000 $27,000 $27,000
Bricktown Square 8.5% July 2003 ======== ======= =======
</TABLE>
- -------------------------
(1) Overall blended rate. The interest rates on four different tranches are
either fixed or capped through the use of interest rate caps and floors.
Approximate scheduled principal payments for the years subsequent to
December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998 (subsequent to May 29, 1998)........................... $ 244
1999........................................................ 20,487
2000........................................................ 470
2001........................................................ 505
2002........................................................ 63,542
2003 and thereafter......................................... 124,468
--------
Total.................................................. $209,716
========
</TABLE>
RECENT DEVELOPMENTS
ACQUISITIONS, REDEVELOPMENTS, DEVELOPMENTS AND LEASING
As of May 29, 1998 the following were either under construction or recently
completed:
Melrose Park, Illinois -- The Company executed a 20-year lease having an
annual rental of $963,000 with Cinemark USA for a 58,000 square foot 10 plex
entertainment facility. The theater is under construction and is expected to
open in November 1998 at a total cost to the Company of $4.2 million.
47
<PAGE> 49
North Aurora, Illinois -- The Company executed a 20-year lease having an
annual rental of $746,000 with Cinemark USA for a 60,000 square foot 17 plex
entertainment facility. The theater is under construction and is expected to
open in July 1998 at a total cost to the Company of $4.3 million.
Westland, Michigan -- In February 1998, the Company acquired the 85,000
square foot Westland Shopping Center in Westland, Michigan for $7.9 million. The
community shopping center has Dick's Sporting Goods and MedMax as its anchor
tenants, and at May 29, 1998, 100% of the GLA at the center was leased.
Sandor Acquisition -- In May 1998, the Company acquired twelve community
shopping centers located in: Indiana (3), Michigan (3), Illinois (2), Kansas
(2), Minnesota (1) and Ohio (1) for $29.5 million. These Properties have
Maurice's, Fashion Bug and Dollar Tree as major tenants, contain a total of
328,000 square feet of GLA and are anchored by a Wal-Mart (each Wal-Mart store
and its underlying pad are owned and managed by an independent third party). At
May 29, 1998, 94.8% of the GLA in the Sandor Acquisition was leased. In
addition, pursuant to the Sandor Acquisition purchase agreement, the Company
agreed to acquire a community shopping center located in Decatur, Illinois for
$4.2 million that contains over 40,000 square feet of GLA and has Wal-Mart and
Sam's Club as anchor tenants (the stores and their underlying pads are owned and
managed by independent third parties). The acquisition of the Decatur, Illinois
property is scheduled to close in November 1998 after the seller completes a
redevelopment of the property.
LOCATIONS OF THE SANDOR COMMUNITY SHOPPING CENTERS
<TABLE>
<CAPTION>
GROSS LEASABLE PERCENT OF GLA LEASED
STATE NUMBER OF PROPERTIES AREA (SQ FT.) AS OF MAY 29, 1998
----- -------------------- -------------- ---------------------
<S> <C> <C> <C>
Indiana.................................... 3 75,000 91.1%
Michigan................................... 3 87,000 100.0%
Illinois(1)................................ 2 64,000 100.0%
Kansas..................................... 2 35,000 87.5%
Minnesota.................................. 1 12,000 88.0%
Ohio....................................... 1 55,000 92.0%
-- -------
Total...................................... 12 328,000 94.8%
== =======
</TABLE>
- -------------------------
(1) Does not include the community shopping center in Decatur, Illinois, the
purchase of which is scheduled to close in November 1998.
ANNUALIZED BASE RENT OF THE SANDOR COMMUNITY SHOPPING CENTERS(1)
The following is a breakdown of annualized base rent as of May 29, 1998 for
the properties by type of tenant:
<TABLE>
<CAPTION>
ANNUALIZED BASE RENT PERCENT OF TOTAL ANNUALIZED
TYPE OF TENANT AS OF MAY 29, 1998(2) BASE RENT AS OF MAY 29, 1998
-------------- --------------------- ----------------------------
<S> <C> <C>
National.......................................... $1,606,000 53.0%
Regional.......................................... 255,000 8.4
Local............................................. 1,171,000 38.6
---------- ------
Total............................................. $3,032,000 100.0%
========== ======
</TABLE>
- -------------------------
(1) Does not include the community shopping center in Decatur, Illinois, the
purchase of which is scheduled to close in November 1998.
(2) "Annualized Base Rent" of the Company as of May 29, 1998 is determined by
multiplying by 12 the monthly rent as of that date, but excluding from the
monthly rent (i) percentage rents, (ii) additional rent payable by tenants
such as common area maintenance, real estate taxes and other expense
reimbursements and (iii) future contractual rent increases.
48
<PAGE> 50
MAJOR TENANTS AT THE SANDOR COMMUNITY SHOPPING CENTERS(1)
The following table sets forth certain information with respect to the
major tenants at the properties as of May 29, 1998:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF ANNUALIZED BASE RENT ANNUALIZED BASE RENT
TENANT LEASES AS OF MAY 29, 1998(2) AS OF MAY 29, 1998
------ --------- --------------------- --------------------
<S> <C> <C> <C>
Maurice's..................................... 8 $ 338,000 11.2%
Fashion Bug................................... 3 294,000 9.7
On Cue Records................................ 5 189,000 6.2
Dollar Tree................................... 5 183,000 6.0
Rentway....................................... 3 107,000 3.5
Famous Footwear............................... 2 99,000 3.3
GNC........................................... 6 97,000 3.2
-- ---------- ----
Total......................................... 32 $1,307,000 43.1%
== ========== ====
</TABLE>
- -------------------------
(1) Does not include the community shopping center in Decatur, Illinois, the
purchase of which is scheduled to close in November 1998.
(2) "Annualized Base Rent" of the Company as of May 29, 1998 is determined by
multiplying by 12 the monthly rent as of that date, but excluding from the
monthly rent (i) percentage rents, (ii) additional rent payable by tenants
such as common area maintenance, real estate taxes and other expense
reimbursements and (iii) future contractual rent increases.
FINANCINGS
In November 1997, the Company entered into the Greenwich Capital Line, a
$25 million revolving loan agreement secured by 16 Properties. The Greenwich
Capital Line bears interest at LIBOR plus 150 basis points and may be increased
to $50 million with the pledge of additional collateral.
In February 1998, the Company assumed a $5.9 million secured term loan with
Wells Fargo Bank in connection with the Westland Acquisition. The loan is
secured by the Westland Shopping Center and bears interest at 8.02%.
In April 1998, First Chicago NBD entered into a $4.5 million secured line
of credit with the Company. The line of credit is collateralized by the
Company's shopping center in Farmington Hills, Michigan and bears interest at
LIBOR plus 200 basis points or in certain instances the bank's prime rate.
In May 1998, the Company entered into an $18 million secured mortgage loan
with Bloomfield Acceptance Company secured by the 12 Properties acquired in the
Sandor Acquisition. This loan bears interest at 7.43%.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's acquisition and investment
policies, financing policies and policies with respect to certain other
activities. The Company's policies with respect to these activities have been
determined by the executive officers of the Company and may be amended or
revised from time to time at the discretion of the Board of Directors without a
vote of the shareholders of the Company.
ACQUISITION AND INVESTMENT POLICIES
The Company's investment objective is to increase cash flow and the value
of its portfolio of properties and to seek continued growth through the
selective acquisition, development, redevelopment and renovation of
income-producing real estate properties, primarily community shopping centers.
Management believes that opportunities to acquire existing community shopping
centers and other retail properties are and will continue to be available to
buyers, such as the Company, with access to the capital markets.
The Company's primary investment objective is to acquire high quality,
well-located community shopping centers and other retail properties with
attractive initial yields and strong prospects for future cash flow growth and
capital appreciation. To the extent that the Company acquires such properties in
geographical
49
<PAGE> 51
areas where it has an established presence, the Company expects to be able to
manage such additional community shopping centers without a substantial increase
in operating and management costs.
The Company will continue to concentrate its acquisition activities in the
markets where its Properties are presently located in order to take maximum
advantage of its knowledge of such markets and its working relationships with
tenants whose stores serve these markets. The Company believes that its focus on
community shopping centers that are anchored by national or regional credit
tenants with long-term leases that are located in select geographic areas has
enabled its Properties to compete favorably in their respective retail trade
areas, factors which have contributed to the Company's stability and ability to
maintain its occupancy rate and cash flow levels. The Company's ability to
evaluate an acquisition opportunity, together with its research to determine an
appropriate tenant mix for a specific site and the Company's overall knowledge
of the retail market, have allowed it to develop and operate successful
Properties.
The Company plans to continue, on a limited basis, the business of managing
commercial properties for third parties. Through such management activities, the
Company expects to be able to identify properties which potentially represent
attractive acquisition opportunities and are complementary to the Company's
current portfolio.
The Company also plans to undertake selective development of community
shopping centers and other commercial properties. Development and redevelopment
have in the past been primary components of the Company's business. The Company
developed or redeveloped 45 of the Properties. The Company's management believes
that its development experience will enable the Company to take advantage of
attractive development opportunities that may rise in the future.
FINANCING POLICIES
In order to most effectively pursue its acquisition and development and
operating strategies, the Company intends to maintain a capital structure with a
ratio of long-term debt (excluding its outstanding convertible debentures and
convertible notes) to total market capitalization of no more than 50%. At March
31, 1998, the Company had a long-term debt (excluding its outstanding
convertible debentures and convertible notes) to total market capitalization
ratio of approximately 39% (73% if its outstanding convertible debentures and
convertible notes were included as long-term debt). Fluctuations in the market
price of the Company's Common Stock, however, may cause this ratio to vary.
Additionally, the Company may from time to time re-evaluate its debt
capitalization policy in light of then current economic conditions, relative
costs of debt and equity capital, the market values of its Properties, growth
and acquisition opportunities and other factors, and the Company may modify its
debt financing policy and may increase or decrease its ratio of long-term debt
to total market capitalization. The Company has established its financing
policies relative to the total market capitalization of the Company rather than
relative to the book value of the Company's assets, a comparison that is
frequently employed by others. The Company uses market capitalization because
management believes that the book value of the Company's assets does not
accurately reflect the fair market value of such assets or the Company's ability
to borrow and to meet debt service requirements. The market capitalization of
the Company, however, is more variable than book value and does not necessarily
reflect the fair market value of the underlying assets of the Company at all
times.
The Company intends to seek additional debt as required by its operations
through public or private markets utilizing structured financings, unsecured
debt sold to the public or private investors, traditional mortgage debt on its
properties and lines of credit in a manner consistent with its debt financing
policy. The mortgages may be recourse, non-recourse or cross-collateralized and
may contain cross-default provisions. The Company does not have a policy
limiting the number of mortgages that may be placed on, or the amount of
indebtedness that may be secured by, any particular property, but mortgage
financing instruments usually limit additional indebtedness on such properties.
The Company intends to finance its acquisitions and developments with the
most appropriate sources of capital, which may include undistributed funds
otherwise available for distribution, the issuance of equity securities, bank
and other institutional borrowings and the issuance of debt securities.
50
<PAGE> 52
WORKING CAPITAL RESERVES
The Company intends to maintain working capital reserves (and when not
sufficient, access to borrowings) in amounts that the Board of Directors
determines to be adequate to meet normal contingencies in connection with the
operation of the Company's business and investments.
OTHER OPERATING POLICIES
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not intend
to (i) invest in the securities of other issuers for the purpose of exercising
control over such issuers; (ii) underwrite securities of other issuers; or (iii)
actively trade in loans or other investments.
The Company does not intend to engage in any related party transactions. In
addition, none of the Company's executive officers intends, or will be
permitted, without the prior approval of the Board of Directors, to engage while
he is an officer or director of the Company (and for one year thereafter in Mr.
Gramer's case) in the acquisition, development or management of commercial real
estate other than through the Company.
The Company may, under certain circumstances, purchase its shares of Common
Stock in the open market, if such purchases are approved by the Board of
Directors. The Board of Directors has authorized the Company to repurchase up to
755,000 of its shares of Common Stock. During 1995 and 1996, the Company
acquired 468,000 shares of Common Stock at an average price per share of $13.18.
No shares were purchased in 1997 or 1998 as of the date of this Prospectus. The
Company does not intend to purchase any shares of Common Stock at the current
price.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Board of Directors of the Company consists of five members, four of
whom are "Independent," as defined in the Articles (that is, not affiliated with
the Company). Under the Articles, at least three of the Company's Directors must
be independent. All Directors of the Company serve terms of one year or until
the election of their respective successor. Officers serve at the pleasure of
the Board of Directors.
The Directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Anthony S. Gramer........................... 55 President, Chief Executive Officer and Director
Michael K. Kaline........................... 35 Vice President
Elliott J. Broderick........................ 40 Chief Accounting Officer
Robert D. Kemp, Jr.(1)(2)................... 57 Director
William McBride III(1)(3)................... 38 Director
William F. Pickard(1)(2).................... 57 Director
Richard T. Walsh(1)(3)...................... 62 Director
</TABLE>
- -------------------------
(1) Independent director
(2) Member of Compensation Committee
(3) Member of Audit Committee
Set forth below is biographical information for the executive officers and
the members of the Board of Directors.
Anthony S. Gramer is the President, Chief Executive Officer and a Director
of the Company, as well as an associate real estate broker of the Company. Mr.
Gramer joined the Company in 1981 and acquired the Company in 1986. From 1972
until 1981, Mr. Gramer served in various executive capacities at companies in
the real estate, banking and mortgage industries. Prior to 1972, Mr. Gramer was
a member of the audit staff of
51
<PAGE> 53
Touche Ross & Co., now known as Deloitte & Touche. Mr. Gramer is also a past
chairman of the legislative committee of the Mortgage Bankers Association of
Michigan. Mr. Gramer has been a Director of the Company since 1986.
Michael K. Kaline serves as Vice President of the Company. Since joining
the Company in 1984, Mr. Kaline has been responsible for overseeing the leasing
of the entire portfolio of the Company. In addition, Mr. Kaline is responsible
for acquisition, development, and property management and is an associate real
estate broker of the Company.
Elliott J. Broderick is the Chief Accounting Officer of the Company and
oversees the accounting and reporting functions of the Company, as well as
regulatory and tax compliance, short-term investments, information systems and
fiscal planning and budgets. Prior to joining the Company in 1991, Mr. Broderick
was employed for seven years by Plante & Moran, Michigan's largest regional CPA
firm. Mr. Broderick is a certified public accountant and a licensed real estate
salesperson and is a member of the American Institute of Certified Public
Accountants and the Michigan Association of Certified Public Accountants.
Robert D. Kemp, Jr. is a co-founder of Wilson, Kemp, and Associates, Inc.,
where he served as the President, Chief Operating Officer and a director since
1968. Wilson, Kemp & Associates, Inc., is a wholly-owned subsidiary of Comerica
Incorporated. In addition, Mr. Kemp currently serves as a director of Wholesale
Auto Receivables Corporation, a wholly-owned subsidiary of General Motors
Acceptance Corporation. Mr. Kemp also serves as the Treasurer, a director and a
member of the Executive Committee of the Detroit and Wayne County Tuberculosis
Foundation. Mr. Kemp has been a Director of the Company since 1994.
William McBride III is Chairman of the Board, Chief Executive Officer and
one of the founders, of Assisted Living Concepts, Inc., an AMEX listed
owner/operator of assisted living facilities based in Portland, Oregon. He has
been serving as Chairman of the Board since August of 1994, and CEO since
October 1997. He is also a member of the Board of Directors for Newcare Health
Corporation, a nursing home operating company listed on NASDAQ. Prior to joining
Assisted Living Concepts, Inc. in the full time position of CEO, Mr. McBride
cofounded LTC Properties, Inc., a REIT, where he was President, Chief Operating
Officer and Board member from August 1992 to October 1997. Prior to co-founding
LTC Properties, Mr. McBride served from April 1988 to July 1992 as Vice
President, Controller and Chief Accounting Officer at Beverly Enterprises, Inc.,
an owner/operator of long-term care facilities, retirement living facilities and
pharmacies. Prior to that, Mr. McBride worked at Ernst & Young, an international
accounting and consulting firm. Mr. McBride has been a Director of the Company
since 1994.
William F. Pickard has served as the Chairman of the Board and Chief
Executive Officer of Regal Plastics Company since 1985. Dr. Pickard currently
serves as a director of Michigan National Corporation (a bank holding company
and a subsidiary of National Australia Bank), WTVS (a Detroit television
station), National Association of Black Automotive Suppliers, Detroit Economic
Development Corporation, Michigan Cancer Foundation and Detroit Science Center.
Dr. Pickard is also a member of the U.S. Advisory Committee for Trade Policy and
Negotiations and the Executive Board of the National Association for the
Advancement of Colored People. From 1983 until 1987, Dr. Pickard was also
Chairman of the Board of Directors of the African Development Foundation. Dr.
Pickard has been a Director of the Company since 1994.
Richard T. Walsh is President of RT Enterprises, a private firm involved in
business consulting and investments, where he has served in that capacity since
1992. Since July 1994, Mr. Walsh has also served as chairman of Pioneer
Industries, Inc., a manufacturer of steel doors and frames. Mr. Walsh served as
the President and Chief Executive Officer of Core Industries Inc, a NYSE listed
company, from 1991 until 1992 and as President and Chief Operating Officer of
Core Industries Inc from 1986 until 1991. From 1982 until 1992, Mr. Walsh also
served as a Director of Core Industries Inc. Mr. Walsh is a Trustee of Walsh
College and a member of the Financial Executive Institute. Mr. Walsh has been a
Director of the Company since 1994.
52
<PAGE> 54
EXECUTIVE COMPENSATION
The following table sets forth, for the years ended December 31, 1997, 1996
and 1995 information concerning the annual and long-term compensation for
services in all capacities to the Company of those persons who, during 1997
were, (i) the chief executive officer and (ii) the other executive officers of
the Company whose compensation is required to be disclosed pursuant to the rules
of the Securities and Exchange Commission:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND COMPENSATION AWARDS OPTIONS(1) PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS ($) ($) (#) ($) ($)
------------------ ---- ------ ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anthony S. Gramer,...... 1997 $287,500 -- -- -- -- -- $4,750(3)
President, Chief
Executive 1996 $287,500 -- -- -- 19,500 -- --
Officer and Director 1995 $250,000 $60,000 -- -- 39,400 -- --
Michael K. Kaline,...... 1997 $137,500 -- $6,910(2) -- -- -- $3,223(3)
Vice President 1996 $125,000 -- -- -- 15,250 -- --
1995 $115,000 $50,000 -- -- 33,900 -- --
</TABLE>
- -------------------------
(1) See "Stock Option Plan."
(2) Represents loan forgiveness by Company.
(3) Represents amount of employer's contribution to 401(k) Plan.
STOCK OPTION PLAN
Prior to the IPO, the Company adopted The Malan Realty Investors, Inc. 1994
Stock Option Plan (the "Stock Option Plan" or "Plan") to enable employees of the
Company to participate in the ownership of the Company. The Stock Option Plan is
designed to align the interests of management with those of the shareholders, to
provide employees with incentives to continue in the employ of the Company, to
attract new employees with outstanding qualifications and to promote the success
of the Company's long-term business objectives.
Under the Stock Option Plan, executive officers and employees of the
Company may be granted options to acquire shares of Common Stock of the Company
("Options"). The Plan is administered by the Compensation Committee of the
Company's Board of Directors, which is authorized to select the executive
officers and other employees to whom Options are to be granted. No member of the
Compensation Committee is eligible to participate in the Stock Option Plan.
The Compensation Committee, in its discretion, determines the number of
Options to be granted to an employee. However, in accordance with the
requirements of the Code for performance-based compensation, the provisions of
the Plan limit the aggregate number of option shares that the Compensation
Committee may grant to an executive officer during any single year to 100,000
shares.
The exercise price of each Option is equal to the aggregate fair market
value of the underlying shares on the date of grant. With the exception of those
Options granted on the date of the IPO, Options vest over a five-year period at
the rate of 20% per year, beginning on the first anniversary of the date of
grant. Options granted on the date of the IPO vest over a three-year period, in
one-third increments, with the initial one-third vesting on the first
anniversary of the date of grant. If an optionee's employment is terminated
within the first year of the date of grant for any reason other than death,
disability, or retirement, the right to exercise the Option is forfeited. If the
optionee's employment is terminated more than one year after the date of grant
for reasons other than death, disability, retirement, or cause, the Option may
be exercised to the extent it was exercisable at the time of termination of
employment. If the termination of employment is for cause, the right to exercise
53
<PAGE> 55
the Option is forfeited. If the termination of employment is because of death,
disability, or retirement, the Option may be exercised in full. No Option may be
exercised ten years after the date of grant.
Notwithstanding the foregoing paragraph, the Compensation Committee, in its
sole and absolute discretion, may accelerate the vesting of any Option that has
been held by an optionee for at least six months from the date of grant of the
Stock Option.
No options were granted in 1997 or to date in 1998 under the Stock Option
Plan.
COMPENSATION OF DIRECTORS
The Company pays its Directors who are not employees of the Company an
annual fee of $12,000 plus a fee of $1,000 for each quarterly meeting of the
Board of Directors attended, plus travel expenses. In 1997, the Company paid, in
the aggregate, $64,000 to Messrs. Kemp, McBride, Pickard and Walsh for serving
as Directors of the Company and as members of a committee of the Board of
Directors. No travel expenses were incurred in 1997 for the Directors.
Pursuant to the terms of the Malan Realty Investors, Inc. 1995 Stock Option
Plan for Non-Employee Directors (the "Directors Stock Option Plan"), each
non-employee Director of the Company is automatically granted a non-qualified
stock option to purchase 1,000 shares of Common Stock of the Company following
the Annual Meeting of the Board of Directors. In the event a vacancy arises on
the Board following the Annual Meeting of Shareholders in any year and a
non-employee Director is nominated to fill such vacancy prior to December 31 of
the same year, such non-employee Director would automatically be granted an
option to acquire 1,500 shares of Common Stock (in lieu of the normal 1,000
share grant) immediately following the next Annual Meeting of the Board of
Directors. Following each Annual Meeting of the Board of Directors thereafter,
the non-employee Director would receive the normal 1,000 share grant, assuming
he is reelected to the Board.
The aggregate number of shares of Common Stock issuable under the Directors
Stock Option Plan is 80,000, subject to certain adjustments. All options granted
must have an exercise price equal to the fair market value of the underlying
shares on the date of grant. Options vest upon grant but do not become
exercisable by the Director until six months following the date of grant.
Options remain exercisable until the tenth anniversary of the date of grant or,
if earlier, until one year after the Director ceases to be a member of the
Board.
Options to acquire 1,000 shares of Common Stock were granted to Messrs.
Kemp, McBride, Pickard and Walsh on both May 15, 1997, and May 13, 1998, at an
exercise price of $17.125 and $17.688, respectively.
Under the Company's 1995 Stock Compensation Plan for Non-Employee Directors
(the "Stock Compensation Plan"), non-employee Directors may make an election
each year to receive all or a portion of their Director's compensation for the
following calendar year in the form of Common Stock of the Company in lieu of
cash. Once made, the election is irrevocable for the following year's
compensation. The number of shares to be paid to a Director in lieu of cash
compensation is determined based on the closing price of the Common Stock on the
New York Stock Exchange on the day before the compensation is earned by a
Director (i.e., the closing price on the day before a Board meeting). For 1997,
Messrs. Kemp and Pickard received 100% of their Directors' compensation in the
form of Common Stock of the Company, and Messrs. McBride and Walsh received 50%
of their Directors' compensation in the form of Common Stock of the Company.
54
<PAGE> 56
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 29, 1998. The Company has
relied upon information supplied by its officers, directors, and certain
shareholders and upon information contained in filings with the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF SHARES
- ------------------------------------ -------------------- -----------------
<S> <C> <C>
Anthony S. Gramer.......................................... 322,995(1) 8.5%
30200 Telegraph Road, Suite 105
Birmingham, Michigan 48025
Michael K. Kaline.......................................... 81,906(2) 2.2
Elliott J. Broderick....................................... 49,786(3) 1.3
Robert D. Kemp, Jr......................................... 10,731(4) *
William McBride III........................................ 7,614(5) *
William F. Pickard......................................... 7,306(6) *
Richard T. Walsh........................................... 7,614(7) *
Directors and Executive Officers as a Group (consisting of
seven individuals named)................................. 487,952(8) 12.7
Credit Suisse First Boston................................. 1,176,470(9) 23.7
Paradeplatz 8
8070 Zurich, Switzerland
FMR Corp................................................... 244,900(10) 6.5
82 Devonshire Street
Boston, Massachusetts 02109
Peter T. Kross............................................. 220,000 5.8
248 Grosse Pointe Blvd.
Grosse Pointe Farms, MI 48236
Merrill Lynch Asset Management, L.P. ...................... 294,116(11) 7.2
800 Scudders Mill Road
Plainsboro, New Jersey 08536
National Westminster Bank Plc.............................. 353,000(12) 8.5
175 Water Street
New York, NY 10038
Putnam Investments, Inc. .................................. 437,653 11.5
One Post Office Square
Boston, Massachusetts 02109
The Prudential Insurance Company of America................ 770,000(13) 18.4
751 Broad Street
Newark, New Jersey 07102-3777
SAFECO Corporation......................................... 371,800 9.8
SAFECO Plaza
Seattle, Washington 98185
Smith Barney, Inc. ........................................ 588,235 15.5
1345 Avenue of the Americas
New York, NY 10105
</TABLE>
- -------------------------
* Less than 1%
(1) Includes 4,235 shares registered in Mr. Gramer's name as custodian for a
minor child and 96,440 shares subject to vested stock options held by Mr.
Gramer. Excludes 1,865 shares owned by Mr. Gramer's son, who shares his
household. See "Management -- Stock Option Plan."
(2) Includes 76,440 shares subject to vested stock options. See "Management --
Stock Option Plan."
(3) Includes 44,620 shares subject to vested stock options. See "Management --
Stock Option Plan."
55
<PAGE> 57
(4) Includes 3,500 shares subject to vested stock options. See "Management --
Compensation of Directors."
(5) Includes 4,500 shares subject to vested stock options. See "Management --
Compensation of Directors."
(6) Includes 3,792 shares subject to vested stock options. See "Management --
Compensation of Directors."
(7) Includes 2,000 shares subject to vested stock options. See "Management --
Compensation of Directors."
(8) See Notes 1 through 7 above.
(9) Represents shares that Credit Suisse First Boston has the right to acquire
through conversion of convertible debentures of the Company.
(10) Based on a group filing of a Schedule 13G made by FMR Corp., Edward C.
Johnson and Abigail P. Johnson. Through their ownership of common stock of
FMR Corp. and a shareholders' voting agreement, Mr. Johnson and Ms. Johnson
may also be deemed beneficial owners of the shares.
(11) Represents shares that may be acquired through conversion of convertible
debentures of the Company. Includes 279,411 shares (approximately 7% of the
Common Stock) beneficially owned by Merrill Lynch Global Allocation Funds,
Inc., for which Merrill Lynch Asset Management, L.P. acts as investment
adviser.
(12) Represents shares that may be acquired upon the exercise of warrants of the
Company held by National Westminster Bank Plc.
(13) Includes 400,000 shares that The Prudential Insurance Company of America
has the right to acquire through conversion of convertible debentures of
the Company.
56
<PAGE> 58
DESCRIPTION OF COMMON STOCK
GENERAL
The Articles authorize the issuance of up to 30 million shares of Common
Stock, par value $.01 per share, and 5 million shares of Preferred Stock, par
value $.01 per share. As of May 29, 1998, there were 3,840,375 shares of Common
Stock issued and outstanding held by approximately 165 shareholders of record,
but no Preferred Stock issued and outstanding. The Company does not have any
current plans to issue any Preferred Stock.
All Common Stock now outstanding is, and the Shares when issued will be,
fully paid and nonassessable.
VOTING RIGHTS
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the shareholders.
The Common Stock possesses ordinary voting rights for the election of
directors and, in respect of other corporate matters, each share entitles the
holder thereof to one vote. Holders of Common Stock do not have cumulative
voting rights in the election of directors, which means that holders of more
than 50% of the shares of Common Stock voting for the election of directors can
elect all of the directors if they choose to do so and the holders of the
remaining shares cannot elect any directors. Holders of shares of Common Stock
do not have preemptive rights, which means they have no right to acquire any
additional shares of Common Stock that may be issued by the Company at a
subsequent date.
Because the Board of Directors has the power to establish the preferences
and rights of each series of Preferred Stock, it may afford the holders of any
series of Preferred Stock powers, preferences, and rights (voting or otherwise)
senior to the rights of the holders of Common Stock. See "Restrictions on
Transfer" and "Certain Provisions of the Articles of Incorporation and Bylaws."
DISTRIBUTIONS AND LIQUIDATION RIGHTS
Subject to such preferential rights as may be granted by the Board of
Directors in connection with the issuance of Preferred Stock, holders of Common
Stock are entitled to receive ratably such distributions as may be declared on
the Common Stock by the Board of Directors in its discretion from funds legally
available for the payment of distributions. In the event of the liquidation,
dissolution, or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of all debts and other
liabilities and any liquidation preference the holders of any Preferred Stock
may have.
RESTRICTIONS ON TRANSFER, ETC.
The Articles generally prevent any holder from owning more than 9.9% in
value of the Company's outstanding Common Stock. See "Restrictions on Transfer"
and "Certain Provisions of the Articles of Incorporation and Bylaws" for a
further discussion of the material restrictions on the transfer and ownership of
Common Stock and other provisions of the Company's organization documents that
may impede a hostile takeover of the Company.
ADDITIONAL EQUITY
As of May 29, 1998, up to 5,493,922 million shares of Common Stock may be
issued, in the aggregate, (i) in exchange for the outstanding debentures of the
Company, (ii) in exchange for the outstanding notes of the Company, (iii) upon
the exercise of outstanding warrants, (iv) upon the exercise of outstanding
stock options under the Company's 1994 Stock Option Plan and (v) upon the
exercise of outstanding options under the Company's 1995 Stock Option Plan for
Non-Employee Directors. In addition, Directors may elect to be compensated in
stock. See "Management -- Compensation of Directors."
57
<PAGE> 59
LISTING AND TRANSFER AGENT
The Common Stock is listed on the NYSE under the symbol "MAL." The
registrar and transfer agent for the Common Stock is The Bank of New York.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Set forth below is a description of certain provisions of the Articles and
the Company's Bylaws (the "Bylaws") as in effect on the date of this Prospectus.
The description is a summary only, and is qualified in its entirety by reference
to the Articles and Bylaws, which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
Under the Articles, the Company is authorized to issue a total of 35
million shares of all classes of stock, consisting of 30 million shares of
Common Stock and up to 5 million shares of Preferred Stock. See "Restrictions on
Transfer."
NUMBER OF DIRECTORS; REMOVAL
The Articles provide that the number of directors will be fixed by the
Bylaws. The Bylaws currently provide that the number of directors will be 5 or
such greater number as is necessary to ensure that a majority of the directors
are Independent Directors.
Directors may be removed only upon the affirmative vote of a majority of
all shares of stock outstanding and entitled to vote.
PREFERRED STOCK
Although the Company does not have any current plans to issue Preferred
Stock, the Articles authorize the Board of Directors to establish one or more
series of Preferred Stock and to determine, with respect to any series of
Preferred Stock, the preferences, rights (including voting and conversion
rights), and other terms of such series. The Company believes that the ability
of the Board of Directors to issue one or more series of Preferred Stock will
provide the Company with increased flexibility in meeting corporate needs. The
authorized shares of Preferred Stock, as well as unissued shares of Common
Stock, are available for issuance without further action by the Company's
shareholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board of Directors has no
present intention to do so, it could issue a series of Preferred Stock that
(because of its terms) could impede a merger, tender offer, or other transaction
that some of the Company's shareholders might believe to be in their best
interests or in which shareholders might receive a premium over the
then-prevailing market prices for their shares.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
The Articles may be amended only by the affirmative vote of a majority of
the votes cast by such holders present in person or by proxy and entitled to
vote. A majority of the members of the Board of Directors may amend the Bylaws
at any time, except with respect to a bylaw that is adopted by the shareholders
and that, by its terms, can be amended only by the shareholders. The
shareholders can amend the Bylaws only upon the affirmative vote of a majority
of the votes cast by such holders present in person or by proxy and entitled to
vote.
OWNERSHIP LIMIT
The Ownership Limit set forth in the Articles could have the effect of
discouraging offers to acquire the Company and of increasing the difficulty of
consummating any such acquisition. See "Restrictions on Transfer."
58
<PAGE> 60
RESTRICTIONS ON TRANSFER
To maintain its qualification as a REIT, the Company cannot be "closely
held" within the meaning of applicable provisions of the Code and Treasury
Regulations. In general, a REIT is "closely held" if five or fewer individuals
(as defined by the Code and Regulations) own more than 50% in value of the
REIT's outstanding capital stock. Under the Articles, in general, no shareholder
may own more than 9.9% in value of the Company's Common Stock (the "Ownership
Limit").
The Articles provide that if the transfer of any shares of Common Stock or
a change in the Company's capital structure would cause any person (other than a
Note Holder or certain look through entities) to own Common Stock in excess of
the Ownership Limit (which refers to 9.9% in value of the outstanding Common
Stock), or in excess of the applicable Note Holder or look through entity limit,
then the transfer is void ab initio.
Any person holding 5% or more of the Company's Common Stock must provide
the Company with information regarding such person's ownership of Common Stock.
The Ownership Limit will not be automatically removed even if the REIT
provisions are changed so as to no longer contain any ownership concentration
limitation or if the concentration limitation is increased. In addition to
preserving the Company's status as a REIT, the effect of the Ownership Limit is
to prevent any person from acquiring unilateral control of the Company. Any
change in the Ownership Limit would require an amendment to the Articles.
Currently, amendments to the Articles require the affirmative vote of a majority
of the votes cast by such holders present in person or by proxy and entitled to
vote.
All certificates evidencing shares of Common Stock or Preferred Stock bear
or will bear a legend referring to the restrictions described above.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain Federal income tax considerations
that may be relevant to a prospective purchaser of the Shares, is based upon
current law, and is not tax advice. This discussion does not address all aspects
of taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances or to certain types of shareholders
(including insurance companies, financial institutions, or broker-dealers)
subject to special treatment under the Federal income tax laws.
This discussion was prepared by Miro Weiner & Kramer, counsel to the
Company, and is based on current provisions of the Code, existing, temporary,
and currently proposed Treasury Regulations under the Code, the legislative
history of the Code, existing administrative rulings and practices of the IRS,
and judicial decisions. No assurance can be given that legislative, judicial, or
administrative changes will not affect the accuracy of any statements in this
Prospectus with respect to transactions entered into or contemplated prior to
the effective date of such changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND
SALE OF THE SHARES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
GENERAL
The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code and applicable Treasury Regulations, which are the
requirements for qualifying as a REIT. The Company believes that it is organized
and operates in such a manner as to qualify for taxation as a REIT under the
Code, and the Company intends to continue to operate in such a manner; however,
no assurance can be given that it has operated in such a manner or that it will
continue to operate in a manner so as to qualify or remain qualified.
59
<PAGE> 61
The REIT Requirements relating to the Federal income tax treatment of REITs
and their shareholders are highly technical and complex. The following
discussion sets forth only a summary of the material aspects of those sections.
TAXATION OF THE COMPANY
As a REIT, the Company generally will not be subject to Federal corporate
income taxes on that portion of its ordinary income or capital gain that is
currently distributed to shareholders.
The REIT provisions of the Code generally allow a REIT to deduct
distributions paid to its shareholders. This deduction for distributions paid to
shareholders substantially eliminates the Federal "double taxation" on earnings
(once at the corporate level and once again at the shareholder level) that
results from investment in a corporation.
Even if the Company qualifies for taxation as a REIT, the Company may be
subject to Federal income tax as follows:
First, the Company will be taxed at regular corporate rates on any
undistributed REIT taxable income and undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any.
Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" (generally, property acquired by
reason of a default on a lease or an indebtedness held by a REIT) that is
held primarily for sale to customers in the ordinary course of business or
(ii) other nonqualifying net income from foreclosure property, it will be
subject to tax at the highest corporate rate on such income.
Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property
held primarily for sale to customers in the ordinary course of business,
other than foreclosure property), such income will be subject to a 100%
tax.
Fifth, if the Company should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below) and has nonetheless
maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the gross income
attributable to the greater of the amount by which the Company fails the
75% or 95% test, multiplied by a fraction intended to reflect the Company's
profitability.
Sixth, if the Company should fail to distribute with respect to each
calendar year at least the sum of (i) 85% of its REIT ordinary income from
such year, (ii) 95% of its REIT capital gain net income for such year, and
(iii) any undistributed taxable income from prior periods, the Company
would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
Seventh, if a REIT acquires any asset from a C corporation (i.e.,
generally a corporation subject to full corporate-level tax) in a carryover
basis transaction (or if a REIT such as the Company holds assets beginning
on the first day of the first taxable year for which the Company qualifies
as a REIT) and the REIT subsequently recognizes gain on the disposition of
such asset during the 10-year period (the "Recognition Period") beginning
on the date on which the asset was acquired by the REIT (or the REIT first
qualified as a REIT), then the excess of (a) the fair market value of the
asset as of the beginning of the applicable Recognition Period, over (b)
the REIT's adjusted basis in such asset as of the beginning of such
Recognition Period will be subject to tax at the highest regular corporate
rate, pursuant to guidelines issued by the IRS (the "Built-In Gain Rules").
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company must meet the requirements discussed
below relating to the Company's organization, sources of income, nature of
assets, and distributions of income to shareholders.
60
<PAGE> 62
Organizational Requirements
The Code defines a REIT as a corporation, trust, or association:
(i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(iii) that would be taxable as a domestic corporation but for the REIT
Requirements;
(iv) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons;
and
(vi) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or
indirectly through the application of certain attribution rules,
by five or fewer individuals (as defined in the Code to include
certain entities).
In addition, certain other tests, described below, regarding the nature of its
income and assets must also be satisfied.
The Code provides that conditions (i) through (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months.
The Company satisfies the requirements set forth in (i) through (v) above
and believes that it satisfies the requirement set forth in (vi) above. In
addition, the Articles currently include certain restrictions regarding transfer
of the Company's shares. These restrictions are intended (among other things) to
assist the Company in continuing to satisfy the share ownership requirements
described in (v) and (vi) above.
Income Tests
To maintain qualification as a REIT, there are two gross income
requirements that must be satisfied annually.
- First, at least 75% of the Company's gross income, excluding gross
income from certain dispositions of property held primarily for sale
to customers in the ordinary course of a trade or business
("prohibited transactions"), for each taxable year must be derived
directly or indirectly from investments relating to real property or
mortgages (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary
investments.
- Second, at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be
derived from such real property investments described above and from
distributions, interest, and gain from the sale or disposition of
stock or securities or from any combination of the foregoing.
Rents received or deemed to be received by the Company will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met.
- First, the amount of rent must not be based in whole or in part on
the income or profits of any person. An amount received or accrued
generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Rents based on net income or
profits do not include rents received from a tenant based on the
tenant's income from the property if the tenant derives
substantially all of its income with respect to such property from
the leasing or subleasing of substantially all of such property,
provided that the tenant receives from subtenants only amounts that
would be treated as rents from real property if received directly by
a REIT.
61
<PAGE> 63
- Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income
tests if the REIT, or an owner of 10% or more of the REIT, directly,
indirectly, or constructively owns 10% or more of such tenant (a
"Related Party Tenant").
- Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the
total rent received under the lease, then the portion of the rent
attributable to such personal property will not qualify as "rents
from real property."
- Finally, if a REIT provides services to tenants of a property, the
rent received from such property will qualify as "rents from real
property" only if the services are of a type that a tax-exempt
organization can provide to its tenants without causing its rental
income to be unrelated business taxable income under the Code (that
is, if such services are "usually or customarily rendered in
connection with the rental of space for occupancy only" and are not
otherwise considered "primarily for the tenant's convenience").
Services which would give rise to unrelated business taxable income
("Prohibited UBTI Service Income") if provided by a tax-exempt
organization must be provided by an "independent contractor" (as
defined in the Code) who is adequately compensated and from whom the
REIT does not derive any income. In any event, receipts from
services furnished (whether or not rendered by an independent
contractor) which are not customarily provided to tenants in
properties of a similar class in the geographic market in which the
property is located will in no event qualify as "rents from real
property." The Taxpayer Relief Act of 1997 (the "1997 Act") added a
de minimis rule which provides that in determining whether a REIT
satisfies the income tests, a REIT's rental income from a property
will not cease to qualify as "rents from real property" merely
because the REIT performs services for a tenant other than permitted
customary services if the amount that the REIT received or is deemed
to have received as a result of performing impermissible services
does not exceed one percent of all amounts received, directly or
indirectly, by the REIT with respect to such property. The amount
that a REIT will be deemed to have received for performing
impermissible services is not less than 150% of the direct cost to
the REIT of providing those services.
Substantially all of the Company's income is derived from rents from the
Properties. The Company's income is largely derived from its interests in the
Properties, which qualify as "rents from real property" for purposes of the 75%
and the 95% gross income tests.
The Company does not charge rent for any property that is based in whole or
in part on the income or profits of any person (except by reason of being based
on a fixed percentage of receipts or sales, as described above). The Company
does not derive rent attributable to personal property leased in connection with
real property that exceeds 15% of the total rents.
The Company does not believe that it derives rent from property rented to a
Related Party Tenant; however, the determination of whether the Company owns 10%
or more of any tenant is made after the application of complex attribution rules
under which the Company will be treated as owning interests in tenants that are
owned by its "Ten Percent Stockholders." In identifying the Company's Ten
Percent Stockholders, each individual or entity will be treated as owning the
Common Stock held by related individuals and entities. Accordingly, the Company
cannot be absolutely certain whether all Related Party Tenants have been or will
be identified. Although rent derived from a Related Party Tenant will not
qualify as rents from real property and, therefore, will not be qualifying
income under the 75% or 95% gross income tests, the Company believes that the
aggregate amount of such rental income (and any other nonqualifying income) in
any taxable year will not cause the Company to exceed the limits on
nonqualifying income under such gross income tests. See "Federal Income Tax
Considerations -- Failure to Qualify."
The Company receives fees in exchange for the performance of certain
management and administrative services for unrelated third parties. Such
management fees generated generally may not be qualified income under the 75% or
95% gross income tests; however, the Company believes that the aggregate amount
of such fees (and any other nonqualifying income) in any taxable year has not
exceeded and will not exceed the limits on nonqualifying income under the 75%
and 95% gross income tests.
62
<PAGE> 64
The term "interest," for purposes of satisfying the income tests, generally
does not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part on the income or
profits of any person. An amount received or accrued generally will not be
excluded from the term "interest," however, solely by reason of being based on a
fixed percentage or percentages of receipts or sales. The Company may advance
money from time to time to tenants for the purpose of financing tenant
improvements. The Company does not intend to charge interest that will depend in
whole or in part on the income or profits of any person.
The term "prohibited transaction," for purposes of the income tests and the
excise tax described below, generally means a sale or other disposition of
property (other than foreclosure property) that is held primarily for sale to
customers in the ordinary course of a trade or business. The net income from a
"prohibited transaction" is subject to a 100% tax. The Company owns real
property that is situated on the periphery of certain of the Properties. The
Company believes that this peripheral property is not held for sale to customers
and that the sale of such peripheral property is not in the ordinary course of
the Company's business. Whether property is held "primarily for sale to
customers in the ordinary course of its trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those
relating to a particular property. As a result, no assurance can be given that
the Company can avoid being deemed to own property that the IRS later
characterizes as property held "primarily for sale to customers in the ordinary
course of its trade or business."
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its return, and
(iii) any incorrect information on the schedule was not due to fraud with intent
to evade tax. It is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of these relief provisions. For
example, if the Company fails to satisfy the gross income tests because
nonqualifying income that the Company intentionally earns exceeds the limits on
such income, the IRS could conclude that the Company's failure to satisfy the
tests was not due to reasonable cause. As discussed above in "Federal Income Tax
Considerations -- Taxation of the Company," even if these relief provisions
apply, a tax would be imposed with respect to the excess gross income.
Asset Tests
The Company, at the close of each quarter of its taxable year, must also
satisfy three tests relating to the nature of its assets.
- First, at least 75% of the value of the Company's total assets must be
represented by real estate assets (which for this purpose include
stock or debt instruments held for not more than one year purchased
with the proceeds of a stock offering or a long-term (at least five
years) debt offering of the Company), cash, cash items, and government
securities.
- Second, not more than 25% of the value of the Company's total assets
may be represented by securities other than those in the 75% asset
class.
- Third, of the investments included in the 25% asset class, the value
of any one issuer's securities owned by the Company may not exceed 5%
of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities.
The Company believes that more than 75% of the value of its assets qualify
as "real estate assets."
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by a
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company believes that it maintains adequate records of the
value of its assets to ensure compliance with the asset tests and to enable the
Company to take such other action within 30 days
63
<PAGE> 65
after the close of any quarter as may be required to cure any noncompliance.
There can be no assurance, however, that such other action will always be
successful.
Annual Distribution Requirements
In order to be treated as a REIT, the Company is required to make
distributions (other than capital gain distributions) to its shareholders in an
amount at least equal to (i) the sum of (a) 95% of the Company's "REIT taxable
income" (computed without regard to the distributions paid deduction and the
Company's net capital gain) and (b) 95% of the net income, if any, from
foreclosure property in excess of the special tax on income from foreclosure
property, minus (ii) the sum of certain items of noncash income.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95% (but less than 100%) of its "REIT taxable
income," as adjusted, it will be subject to tax thereon at regular ordinary and
capital gains corporate tax rates.
Furthermore, if the Company fails to distribute during each calendar year
at least the sum of (a) 85% of its REIT ordinary income for such year, (b) 95%
of its REIT capital gain net income for such year, and (c) any undistributed
taxable income from prior periods, the Company will be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed. The Company intends to make timely distributions sufficient to
satisfy this annual distribution requirement.
The Company's REIT taxable income consists substantially of rents from the
Properties. Currently the Company's REIT taxable income is less than its funds
available for distribution, due to the allowance of depreciation and other
non-cash charges in computing REIT taxable income. Accordingly, the Company
anticipates that it will generally have sufficient cash or liquid assets to
enable it to satisfy the 95% distribution requirement.
It is possible that, from time to time, the Company may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such an insufficiency or such timing differences occur, in order to meet the 95%
distribution requirement, the Company may find it necessary to arrange for
short-term, or possibly long-term, borrowings or to pay distributions in the
form of taxable stock distributions.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency
distributions" to shareholders in a later year, which may be included in the
Company's deduction for distributions paid for the earlier year. Thus, the
Company may be able to avoid being taxed on amounts distributed as deficiency
distributions; however, the Company will be required to pay interest based upon
the amount of any deduction taken for deficiency distributions.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
the Company will be subject to tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. Distributions to
shareholders in any year in which the Company fails to qualify will not be
deductible by the Company nor will they be required to be made. In such event,
to the extent of current and accumulated earnings and profits, all distributions
to shareholders will be taxable as ordinary income, and subject to certain
limitations of the Code, corporate distributees may be eligible for the
distributions-received deduction (although special rules apply in the case of
any "extraordinary dividend" as defined in Code Section 1059). Unless entitled
to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances the Company would be entitled to such statutory relief. For
example, if the Company fails to satisfy the gross income tests because
nonqualifying income that the Company intentionally earns exceeds the limits on
such income, the IRS could conclude that the Company's failure to satisfy the
64
<PAGE> 66
tests was not due to reasonable cause. See "Federal Income Tax
Considerations -- Requirements for Qualification -- Income Tests."
TAXATION OF U.S. SHAREHOLDERS
As used in the following discussion, the term "U.S. Shareholder" means a
holder of Common Stock that (for United States Federal income tax purposes) (i)
is a citizen or resident of the United States, (ii) is a corporation,
partnership, or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, or (iii) is an estate or
trust the income of which is subject to United States Federal income taxation
regardless of its source. For any taxable year for which the Company qualifies
for taxation as a REIT, amounts distributed to taxable U.S. Shareholders will be
taxed as follows.
Distributions Generally
Distributions to U.S. Shareholders, other than capital gain distributions
discussed below, constitute distributions to such shareholders up to the amount
of the Company's current or accumulated earnings and profits and are taxable to
such shareholders as ordinary income. Such distributions are not eligible for
the distributions-received deduction for corporations. Under current law, the
maximum Federal income tax rate applicable to ordinary income of individuals is
39.6% and applicable to corporations is 35%. To the extent that the Company
makes distributions in excess of its current or accumulated earnings and
profits, such distributions will first be treated as a tax-free return of
capital, reducing the tax basis in the U.S. Shareholders' Common Stock, and
distributions in excess of the U.S. Shareholders' tax basis in their respective
Common Stock are taxable as gain realized from the sale of such shares. A
dividend declared by the Company in October, November, or December of any year
payable to a shareholder of record on a specified date in any such month is
treated as both paid by the Company and received by the shareholder on December
31 of such year, provided that the dividend is actually paid by the Company
during January of the following calendar year. Shareholders may not include on
their own income tax returns any tax losses of the Company. Pursuant to
Regulations to be promulgated by the Treasury, a portion of the Company's
distributions may be subject to the alternative minimum tax to the extent of the
Company's items of tax preference, if any, allocated to the shareholders.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
"Federal Income Tax Considerations -- Taxation of the Company" above. As a
result, U.S. Shareholders may be required to treat certain distributions that
would otherwise result in a tax-free return of capital as taxable distributions.
Moreover, any "deficiency dividend" will be treated as a "dividend" (an ordinary
dividend or a capital gain dividend, as the case may be), regardless of the
Company's earnings and profits.
Capital Gain Distributions
A dividend paid to a U.S. Shareholder that is properly designated by the
Company as a capital gain dividend will be treated as long-term capital gain to
the extent it does not exceed the Company's actual net capital gain for the
taxable year without regard to the period for which the shareholder has held his
Common Stock; however, corporate shareholders may be required to treat up to 20%
of certain capital gains distributions as ordinary income. Capital gain
distributions are not eligible for the distributions-received deduction for
corporations.
Pursuant to the 1997 Act, a REIT may elect to require its shareholders to
include the REIT's undistributed net capital gains in their income. If the REIT
makes such an election, the REIT's shareholders will include in their income as
long-term capital gain their proportionate share of the undistributed net long-
term capital gains and will receive a credit or refund for their proportionate
share of the tax paid by the REIT on such undistributed capital gains as well as
an increase in basis for the amount of capital gain so included in their income
reduced by the amount of the credit or refund. The 1997 Act, however, did not
change the 4% excise tax imposed upon a failure to make required distributions.
See "Federal Income Tax Considerations -- Requirements for
Qualification -- Annual Distribution Requirements."
65
<PAGE> 67
The 1997 Act significantly changed the taxation of capital gains by
taxpayers who are individuals, estates, or trusts. Subject to certain
exceptions, the maximum rate for individuals, trusts, and estates on gain from
the sale or exchange of assets held for more than 18 months has been reduced to
20%. The maximum rate has been reduced to 18% for assets acquired after December
31, 2000 and held for more than five years. The maximum capital gains rate for
capital assets held for more than one year but not more than 18 months remains
at 28%. The maximum rate for net capital gains attributable to the sale of
depreciable real property held for more than 18 months is 25% to the extent of
the deductions for depreciation with respect to such property. With respect to
any depreciable real property held for more than one year but not more than 18
months, depreciation deductions claimed in excess of the depreciation that would
have been allowed if computed on a straight-line basis will be taxed at the
rates applicable to ordinary income with the remaining gain being taxed at a
maximum rate of 28%.
On November 10, 1997, the IRS issued IRS Notice 97-64, which provides
generally that the Company may classify portions of its designated capital gain
distributions as (i) subject to the 20% rate, (ii) an unrecaptured Section 1250
gain distribution (which would be taxed as long-term capital gain at the 25%
rate), or (iii) subject to the 28% rate. If no designation is made, the entire
designated capital gain dividend will be subject to the 28% rate. IRS Notice
97-64 provides that a REIT must determine the maximum amount that it may
designate as distributions subject to the 20% and 25% rates by performing the
computation required by the Code as if the REIT were an individual whose
ordinary income were subject to a marginal tax rate of at least 28%. The Notice
further provides that designations made by the REIT will only be effective to
the extent that they comply with Revenue Ruling 89-81, which requires that
distributions made to different classes of shares not be composed
disproportionately of distributions of a particular type.
Passive Activity Loss and Investment Interest Limitations
Distributions from the Company and gain from the disposition of Common
Stock will not be treated as passive activity income, and therefore, U.S.
Shareholders generally will not be able to apply any "passive losses" against
such income. Distributions from the Company (to the extent they do not
constitute a return of capital) and gain from the disposition of shares
generally may be treated as investment income for purposes of the investment
interest limitation.
Certain Dispositions of Common Stock
A U.S. Shareholder will recognize gain or loss on the sale or exchange of
Common Stock to the extent of the difference between the amount realized on such
sale or exchange and the shareholder's tax basis in such Common Stock. Such gain
or loss generally will constitute long-term capital gain or loss if the
shareholder has held such shares for more than one year. Losses incurred on the
sale or exchange of Common Stock held for 180 days or less (after applying
certain holding period rules), however, will generally be deemed long-term
capital loss to the extent of any long-term capital gain distributions received
by the U.S. Shareholder with respect to such Common Stock. For a discussion of
the tax rates imposed on capital gains see "Federal Income Tax
Considerations -- Taxation of U.S. Shareholders -- Capital Gain Distributions."
Treatment of Tax-Exempt Shareholders
Distributions from the Company to a tax-exempt employee's pension trust or
other domestic tax-exempt shareholder will not constitute "unrelated business
taxable income" ("UBTI") unless such shareholder has borrowed to acquire or
carry the Common Stock or the Company is a "pension-held REIT," as discussed
below.
Qualified trusts that hold more than 10% (by value) of the shares of
certain REITs ("pension-held REITS") may be required to treat a certain
percentage of such a REIT's distributions as UBTI. This requirement will apply
only if (i) the REIT would not qualify as such for Federal income tax purposes
but for the application of a "look-through" exception to the five-or-fewer
requirement applicable to shares held by qualified trusts and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is predominantly held if either
(i) a single qualified trust holds more than 25% by value of the REIT interests
or (ii) one or more
66
<PAGE> 68
qualified trusts, each owning more than 10% by value of the REIT interests, hold
in the aggregate more than 50% of the REIT interests. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by the
REIT (treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (b) the total gross income (less certain associated expenses) of
the REIT. A de minimis exception applies when the ratio set forth in the
preceding sentence is less than 5% for any year. For these purposes, a qualified
trust is any trust described in section 401(a) of the Code and exempt from tax
under section 501(a) of the Code. The provisions requiring qualified trusts to
treat a portion of REIT distributions as UBTI will not apply if the REIT is able
to satisfy the five-or-fewer requirement without relying upon the "look-through"
exception. The Company believes that it is not a "pension-held REIT." No
assurance can be given, however, that the Company will not become a pension-held
REIT in the future.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN SHAREHOLDERS
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships, and foreign
trusts and estates (collectively, "Non-U.S. Shareholders") are complex, and the
following discussion is intended only as a summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of Federal, state, and local income tax laws on an investment in the
Company, including any reporting requirements.
In general, a Non-U.S. Shareholder will be subject to regular United States
income tax with respect to its investment in the Company if such investment is
"effectively connected" with the Non-U.S. Shareholder's conduct of a trade or
business in the United States. A corporate Non-U.S. Shareholder that receives
income that is (or is treated as) effectively connected with a U.S. trade or
business may also be subject to the branch profits tax under Section 884 of the
Code, which is payable in addition to regular United States corporate income
tax. The following discussion will apply to Non-U.S. Shareholders whose
investment in the Company is not so effectively connected.
A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain dividend will be treated
as an ordinary income dividend to the extent made out of current or accumulated
earnings and profits. Generally, any ordinary income dividend will be subject to
a United States withholding tax equal to 30% of the gross amount of the dividend
unless such tax is reduced by an applicable tax treaty. Such a distribution of
cash in excess of the Company's earnings and profits will be treated first as a
return of capital that will reduce a Non-U.S. Shareholder's basis in its Common
Stock (but not below zero) and then as gain from the disposition of such Common
Stock, the tax treatment of which is described under the rules discussed below
with respect to disposition of Common Stock.
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Shareholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Shareholder
as if such distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Shareholder will be taxed at the
normal capital gain rates applicable to a U.S. Shareholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder that is not entitled to treaty exemption.
The Company will be required to withhold from distributions to Non-U.S.
Shareholders, and remit to the IRS, (i) 35% of designated capital gain
distributions (or, if greater, 35% of the amount of any distributions that could
be designated as capital gain distributions) and (ii) 30% of ordinary
distributions paid out of earnings and profits. In addition, if the Company
designates prior distributions as capital gain distributions, subsequent
distributions, up to the amount of such prior distributions, will be treated as
capital gain distributions for purposes of withholding. A distribution in excess
of the Company's earnings and profits may be subject to 30% dividend withholding
if at the time of the distribution it cannot be determined whether the
distribution will be in an amount in excess of the Company's current and
accumulated earnings and profits. Tax treaties may reduce the Company's
withholding obligations. If the amount withheld by the Company with
67
<PAGE> 69
respect to a distribution to a Non-U.S. Shareholder exceeds such shareholder's
United States tax liability with respect to such distribution (as determined
under the rules described in the two preceding paragraphs), the Non-U.S.
Shareholder may file for a refund of such excess from the IRS. It should be
noted that the 35% withholding tax rate on capital gain distributions currently
corresponds to the maximum income tax rate applicable to corporations, but is
higher than the 28% maximum rate on capital gains of individuals.
Unless the Common Stock constitutes a "United States real property
interest" within the meaning of FIRPTA, the sale of Common Stock by a Non-U.S.
Shareholder generally will not be subject to United States taxation. The Common
Stock will not constitute a United States real property interest if the Company
is a "domestically controlled REIT." A domestically controlled REIT is a REIT in
which at all times during a specified testing period less than 50% in value of
its shares is held directly or indirectly by Non-U.S. Shareholders. Currently,
the Company believes that it is a domestically controlled REIT, and therefore
the sale of Common Stock is not subject to taxation under FIRPTA. Because the
Common Stock is publicly traded, however, no assurance can be given that the
Company will continue to be a domestically controlled REIT. If the Company does
not constitute a domestically controlled REIT, whether a Non-U.S. Shareholder's
sale of Common Stock would be subject to tax under FIRPTA as a sale of a United
States real property interest would depend on whether the shares were "regularly
traded" (as defined by applicable Treasury Regulations) on an established
securities market (e.g., the New York Stock Exchange) and on the size of the
selling shareholder's interest in the Company.
If the gain on the sale of the Common Stock were subject to taxation under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as a
U.S. Shareholder with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). In any event, a purchaser of Common Stock from a Non-U.S.
Shareholder will not be required under FIRPTA to withhold on the purchase price
if the purchased Common Stock is "regularly traded" on an established securities
market or if the Company is a domestically controlled REIT. Otherwise, under
FIRPTA the purchaser of Common Stock may be required to withhold 10% of the
purchase price and remit such amount to the IRS, and the Company may be required
to withhold 10% of certain distributions to Non-U.S. Shareholders.
Notwithstanding the foregoing, capital gain not subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident
alien individual who is present in the United States for 183 days or more during
the taxable year and certain other conditions apply, in which case the
nonresident alien individual will be subject to a 30% tax on such individual's
capital gains.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Shareholders of Common Stock may be
subject to backup withholding at a rate of 31% on payments made with respect to,
or cash proceeds of a sale or exchange of, Common Stock. Backup withholding will
apply only if the holder (i) fails to furnish its taxpayer identification number
("TIN") (which, for an individual, would be his social security number), (ii)
furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed
properly to report payments of interest and distributions, or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has furnished
a correct TIN and has not been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments. Backup
withholding will not apply with respect to payments made to certain exempt
recipients, such as corporations and tax-exempt organizations. U.S. Shareholders
should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption. Backup withholding is not an additional tax. Rather, the amount of
any backup withholding with respect to a payment to a U.S. Shareholder will be
allowed as a credit against such U.S. Shareholder's United States Federal income
tax liability and may entitle such U.S. Shareholder to a refund, provided that
the required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding with respect to Non-U.S. Shareholders, and Non-U.S. Shareholders
should consult their tax advisors with respect to any such information reporting
and backup withholding requirements. Backup withholding with respect to Non-U.S.
Shareholders is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a Non-U.S. Shareholder will be allowed
as a credit against any United States Federal income tax
68
<PAGE> 70
liability of such Non-U.S. Shareholder. If withholding results in an overpayment
of taxes, a refund may be obtained, provided that the required information is
furnished to the IRS.
STATE AND LOCAL TAXES
The Company is, and its shareholders may be, subject to state, local, or
other taxation in various state, local, or other jurisdictions, including those
in which they transact business or reside. The tax treatment in such
jurisdictions may differ from the Federal income tax consequences discussed
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on their investment in
the Company.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
prohibited transaction provisions of Section 4975 of the Code that may be
relevant to prospective investors. This discussion does not purport to deal with
all aspects of ERISA or the Code that may be relevant to particular investors in
light of their particular circumstances. A PROSPECTIVE INVESTOR THAT IS AN
EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA, A TAX QUALIFIED RETIREMENT PLAN, AN IRA
OR A GOVERNMENTAL, CHURCH OR OTHER PLAN THAT IS EXEMPT FROM ERISA IS ADVISED TO
CONSULT ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING
UNDER APPLICABLE PROVISIONS OF ERISA, THE CODE AND STATE LAW WITH RESPECT TO THE
PURCHASE, OWNERSHIP, OR SALE OF THE SHARES BY SUCH PLAN OR IRA.
FIDUCIARY DUTIES AND PROHIBITED TRANSACTIONS
A fiduciary of a pension, profit-sharing, retirement, or other employee
benefit plan subject to ERISA (an "ERISA Plan") should consider the fiduciary
standards under ERISA in the context of the ERISA Plan's particular
circumstances before authorizing an investment of any portion of the ERISA
Plan's assets in the Shares. Accordingly, such fiduciary should consider (i)
whether the investment satisfies the diversification requirements of Section
404(a)(1)(C) of ERISA; (ii) whether the investment is in accordance with the
documents and instruments governing the ERISA Plan as required by Section
404(a)(1)(D) of ERISA; (iii) whether the investment is prudent under Section
404(a)(1)(B) of ERISA; and (iv) whether the investment is solely in the
interests of the ERISA Plan participants and beneficiaries and for the exclusive
purpose of providing benefits to the ERISA Plan participants and beneficiaries
and defraying reasonable administrative expenses of the ERISA Plan as required
by Section 404(a)(1)(A) of ERISA.
In addition to the imposition of fiduciary standards, ERISA and Section
4975 of the Code prohibit a wide range of transactions between an ERISA Plan, an
IRA or certain other plans (collectively, a "Plan") and persons who have certain
specified relationships to the Plan ("parties in interest" within the meaning of
ERISA and "disqualified persons" within the meaning of the Code). Thus, a Plan
fiduciary or person making an investment decision for a Plan also should
consider whether the acquisition or the continued holding of the Shares might
constitute or give rise to a direct or indirect prohibited transaction.
PLAN ASSETS
The prohibited transaction rules of ERISA and the Code apply to
transactions with a Plan and also to transactions with the "plan assets" of a
Plan. The "plan assets" of a Plan include the Plan's interest in an entity in
which the Plan invests and, in certain circumstances, the assets of the entity
in which the Plan holds such interest. The term "plan assets" is not
specifically defined in ERISA or the Code, nor, as of the date hereof, has it
been interpreted definitively by the courts in litigation. On November 13, 1986,
the United States Department of Labor, the governmental agency primarily
responsible for administering ERISA, adopted a final regulation (the "DOL
Regulation") establishing the standards it will apply in determining whether an
equity investment in an entity will cause the assets of such entity to
constitute "plan assets." The DOL Regulation applies for purposes of both ERISA
and Section 4975 of the Code.
69
<PAGE> 71
Under the DOL Regulation, if a Plan acquires an equity interest in an
entity, which equity interest is not a "publicly-offered security," and equity
participation by Plan investors is "significant" as defined in the DOL
Regulation, the Plan's assets generally would include both the equity interest
and an undivided interest in each of the entity's underlying assets unless
certain specified exceptions apply. The DOL Regulation defines a
publicly-offered security as a security that is "widely held," "freely
transferable," and either part of a class of securities registered under Section
12(b) or 12(g) of the Exchange Act or sold pursuant to an effective registration
statement under the Securities Act (provided the securities are registered under
the Exchange Act within 120 days after the end of the fiscal year of the issuer
during which the offering occurred). The Shares offered by this Prospectus are
being sold in an offering registered under the Securities Act and are registered
under Section 12(b) of the Exchange Act.
The DOL Regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A class of securities will not fail to be
"widely held," however, solely because the number of independent investors falls
below 100 subsequent to an initial public offering as a result of events beyond
the issuer's control. The Company believes that the Shares are "widely held" for
purposes of the DOL Regulation.
The DOL Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all the
relevant facts and circumstances. The DOL Regulation further provides that when
a security is part of an offering in which the minimum investment is $10,000 or
less, as will be the case with this Offering, certain restrictions ordinarily
will not affect, alone or in combination, the finding that such securities are
freely transferable. The Company believes that the restrictions imposed under
the Articles on the transfer of the Shares are limited to restrictions on
transfer generally permitted under the DOL Regulation and are not likely to
result in the failure of the Shares to be "freely transferable." See
"Restrictions on Transfer." The DOL Regulation only establishes a presumption in
favor of a finding of free transferability; therefore, no assurance can be given
that the Department of Labor or the Treasury Department would not reach a
contrary conclusion with respect to the Shares.
Assuming that the Shares will be "widely held" and "freely transferable,"
the Company believes that the Shares will be publicly-offered securities for
purposes of the DOL Regulation and that the assets of the Company will not be
deemed to be "plan assets" of any Plan that invests in the Shares.
70
<PAGE> 72
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, the Underwriters named below, for whom Roney Capital Markets and
First of Michigan Corporation are acting as the representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase, and the Company has agreed to sell
to them severally, the respective number of Shares set forth opposite their
names below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE PURCHASED
----------------
<S> <C>
Roney Capital Markets ......................................
First of Michigan Corporation...............................
---------
Total.................................................. 1,500,000
=========
</TABLE>
Roney Capital Markets is a division of First Chicago Capital Markets, Inc.,
an indirect, wholly-owned subsidiary of First Chicago NBD Corporation, which
owns NBD Bank, a lender to the Company.
The Representatives have advised the Company that they propose initially to
offer the Shares directly to the public at the public offering price set forth
on the cover page of this Prospectus, and to certain dealers at such price less
a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a discount not in excess of $ per share to
certain other dealers. After the public offering of the Shares, the public
offering price, concession, and discount may be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable within 30
days from the date of this Prospectus, to purchase up to an additional 225,000
shares of Common Stock at the same price per share as the 1,500,000 shares of
Common Stock offered to the public hereby, less underwriting discounts and
commissions. The Underwriters may exercise the option only for the purpose of
covering over-allotments, if any, made in connection with the distribution of
the Shares.
The Company has agreed that, until 180 days after the date of this
Prospectus, it will not, without the prior written consent of the
Representatives, sell, offer to sell, issue, distribute or otherwise dispose of
any Common Stock or any securities or interests convertible into or exercisable
or exchangeable for shares of Common Stock or register for sale under the
Securities Act of 1933, as amended, any shares of Common Stock, except for the
Shares offered hereby, the shares of Common Stock issuable upon conversion of
the debentures and notes, the shares of Common Stock issuable upon the exercise
of options granted under the employee and director stock option plans, and
shares available pursuant to the warrants issued in connection with the IPO.
Anthony S. Gramer, Michael K. Kaline and Elliott J. Broderick have also
agreed with the Underwriters not to offer to sell, sell, contract to sell, grant
any option to purchase, pledge, hypothecate or otherwise dispose of any shares
of Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of the Representatives.
Pursuant to the Underwriting Agreement, the Company has agreed to indemnify
the Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
In order to facilitate the offering of the Shares, the Underwriters may
engage in transactions that stabilize, maintain, or otherwise affect the price
of the Shares. Specifically, the Underwriters may over-allot in connection with
this offering, creating a short position in the Shares for their own account. In
addition, to cover over-allotments or to stabilize the price of the Shares, the
Underwriters may bid for, and purchase, the Shares in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Shares in this offering, if the
syndicate repurchases previously distributed Shares in transactions to cover the
syndicate short positions, in stabilization transactions, or otherwise. Any of
these activities may stabilize or maintain the market price of the Shares above
independent
71
<PAGE> 73
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.
In the ordinary course of business, the Underwriters and their affiliates
may in the future perform investment banking and consulting services for the
Company.
LEGAL MATTERS
The validity of the Shares offered by this Prospectus, as well as certain
legal matters, will be passed upon for the Company by Miro Weiner & Kramer, 500
N. Woodward Avenue, Suite 100, Bloomfield Hills, Michigan 48304. Certain legal
matters for the Underwriters will be passed upon by Honigman Miller Schwartz and
Cohn. Kenneth H. Gold, a senior member of Miro Weiner & Kramer, is the Secretary
of the Company.
EXPERTS
The consolidated financial statements of Malan Realty Investors, Inc. as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included and incorporated by reference in this Prospectus, and
the related consolidated financial statement schedule incorporated by reference
in this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are included and incorporated by
reference herein, and have been so included and incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The combined statement of revenues and certain expenses of the Midwest
Shopping Center Retail Portfolio for the year ended December 31, 1997, included
in this Prospectus, has been audited by Katz, Sapper & Miller, LLP, independent
auditors, as stated in their report, appearing herein, and has been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-2 (together with
all amendments and exhibits thereto, the "Registration Statement") under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement and the exhibits
filed as part thereof. Statements contained herein are qualified in their
entirety by reference to the Registration Statement and such exhibits.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements, and
other information filed by the Company with the Commission can be inspected and
copied at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Company's Common Stock is traded on the NYSE
under the symbol "MAL." These reports, proxy statements, and other information
filed by the Company can also be inspected at the NYSE's offices at 20 Broad
Street, New York, New York 10005.
The Commission maintains a World Wide Web Site (http://www.sec.gov) that
contains such material regarding issuers that file electronically with the
Commission. The Registration Statement has been so filed and may be obtained at
such site. Any statements contained in this Prospectus concerning the provisions
of any document are not necessarily complete, and in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
72
<PAGE> 74
INCORPORATION BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1997, and the Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1998 are hereby incorporated by reference.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act (including any documents incorporated by reference
in such documents) after the date of this Prospectus and prior to the
termination of the offering of the Shares offered by this Prospectus shall be
deemed to be incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of filing such documents.
Any statement contained in a document incorporated or deemed incorporated
by reference in this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any other subsequently filed document that also is or is deemed
to be incorporated by reference in this Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of any such
person, a copy of any or all of the documents incorporated by reference in this
Prospectus (other than exhibits to such documents that are not specifically
incorporated by reference in such documents). Written or oral requests for
copies should be directed to Malan Realty Investors, Inc., 30200 Telegraph Road,
Suite 105, Birmingham, Michigan 48025-4503, Attention: Chief Accounting Officer
(telephone: (248) 644-7110).
73
<PAGE> 75
GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus:
"1997 Act" means The Taxpayer Relief Act of 1997.
"Agreement" means the 1995 agreement between Kmart and the Company.
"Annualized Base Rent" means the monthly rent as of the specified date,
multiplied by 12, but excluding from the monthly rent (i) percentage rents, (ii)
additional rent payable by tenants such as common area maintenance, real estate
taxes and other expense reimbursements and (iii) future contractual rent
increases.
"Articles" means the Company's Amended and Restated Articles of
Incorporation.
"Asset Tests" means, under the DOL Regulation's guidelines for an entity to
qualify as a real estate operating company, the requirement that on certain
specified valuation dates, at least 50% of its assets (valued at cost and
excluding certain short-term investments) be invested in real estate which is
managed or developed and with respect to which such entity has the right to
substantially participate directly in the management or development activities.
"By-Laws" means the Company's By-Laws, as amended.
"Built-in Gain" means the difference between the fair market value and the
adjusted basis of an asset subject to the Built-in-Gain Rules as determined by
the Company with the advice of counsel.
"Built-in-Gain Rules" has the meaning ascribed to it under the caption
"Federal Income Tax Considerations -- Taxation of the Company."
"Cinemark" means Cinemark USA.
"Clinton Pointe" means the Clinton Pointe Shopping Center.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the Common Stock of the Company.
"Company" means Malan Realty Investors, Inc., a Michigan corporation.
"Daiwa" means Daiwa Finance Corporation.
"DOL" means the United States Department of Labor.
"DOL Regulation" means a regulation, issued by the DOL, defining "plan
assets."
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Plan" means a pension, profit-sharing, or other employee benefit
plan subject to Title I of ERISA.
"Excess Stock" means shares owned, or deemed to be owned, or transferred to
a shareholder in excess of the Ownership Limit.
"Fairlane Meadows" means The Shops at Fairlane Meadows.
"FIRPTA" means the Foreign Investment in Real Property Act of 1980.
"Funds From Operations" means net income (computed in accordance with
generally accepted accounting principals), excluding gains (or losses) from
sales of property, adjusted for certain non-cash items, primarily depreciation,
amortization and minority partners' interest.
"GLA" means gross leasable area.
"Greenwich" means Greenwich Capital Markets, Inc., a division of National
Westminster Bank Plc.
74
<PAGE> 76
"Greenwich Capital Line" means the Company's Secured Line of Credit with
Greenwich.
"Independent Directors" means the directors of the Company who are
unaffiliated with the Company.
"IPO" means the Company's initial public offering in June 1994.
"IRA" means an individual retirement account.
"IRS" means the United States Internal Revenue Service.
"Kmart" means Kmart Corporation.
"LIBOR" means the London Interbank Offered Rate.
"Malan (Predecessor)" as used in the financial and operating data, means a
combination of the then existing real estate management operations of the
Company, prior to the acquisition of the Properties, and the principal real
estate properties of Bricktown Square Associates (i.e., Bricktown).
"MBCA" means the Michigan Business Corporation Act.
"Midwest Acquisition" means the acquisition of the Midwest Shopping Center
Retail Portfolio.
"Midwest Shopping Center Retail Portfolio" means the 12 Properties acquired
in the Sandor Acquisition plus the property located in Decatur, Illinois,
acquired pursuant to the Sandor Acquisition purchase agreement (the purchase of
which is expected to close in November 1998).
"NAREIT" means the National Association of Real Estate Investment Trusts.
"Non-U.S. Shareholders" means non-resident alien individuals, foreign
corporations, foreign partnerships and foreign trusts and estates.
"Note Holder" means Merrill Lynch Global Allocation Fund, Inc., a Maryland
corporation, and any Person to whom a Note Holder transfers Beneficial Interest
of Common Stock provided that (i) such transferee is a look through entity, (ii)
the result of such transfer would be to cause the transferee to beneficially own
or constructively own shares of Common Stock in excess of the greater of the
Ownership Limit or any pre-existing Note Holder Limit with respect to such
transferee (such excess being herein referred to as the "Excess Percentage") and
(iii) the transferor Note Holder, by notice to the Corporation in connection
with such transfer, designates such transferee as a successor Note Holder (it
being understood that, upon any such transfer, the Note Holder Limit for the
transferor Note Holder shall be reduced by the Excess Percentage (as defined in
the Articles) and the applicable Ownership Limit or Note Holder Limit for the
transferee Note Holder shall be increased by such Excess Percentage).
"Note Holder Limit" means 40% of the outstanding Common Stock of the
Company.
"Offering" means the offering of the Shares pursuant to this Prospectus.
"Ownership Limit" means the limit on direct or constructive ownership by
any shareholder of more than 9.9% in value of the outstanding Common Stock of
the Company.
"Preferred Stock" means the Preferred Stock of the Company.
"Prohibited UBTI Service Income" means services that would give rise to
UBTI.
"Properties" means the 66 income producing properties owned by the Company.
"Prospectus" means this Prospectus relating to the sale of 1,500,000 shares
of Common Stock of the Company in the Offering, plus the 225,000 shares subject
to the Underwriters' over-allotment.
"Recognition Period" means the recognition period pertaining to
Built-in-Gain as defined pursuant to Regulations to be issued under Section
337(d) of the Code.
"REIT" means a real estate investment trust as defined pursuant to Sections
856 through 860 of the Code.
75
<PAGE> 77
"REIT Requirements" means the requirements for qualifying as a REIT under
the Code and Treasury Regulations.
"Related Party Tenant" means a tenant that is owned, directly or
constructively, by a REIT or an owner of 10% or more of a REIT.
"Sandor Acquisition" means the acquisition of 12 Properties from the Sandor
Development Company, as agent for various related entities, for $29.47 million.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Securitized Mortgage Loan" means the Company's outstanding $63 million
loan under a real estate mortgage conduct.
"Shares" means the shares of Common Stock being offered by this Prospectus.
"TIN" means Taxpayer Identification Number.
"Ten Percent Stockholder" means each individual or entity which owns,
either directly or through related individuals and entities under the applicable
attribution rules of the Code, 10% or more of the Company's outstanding shares
of Common Stock.
"Treasury Regulations" means the Income Tax Regulations promulgated under
the Code.
"UBTI" means unrelated business taxable income as defined in Section 512(a)
of the Code.
"Underwriters" means the underwriters set forth under the caption
"Underwriting" in this Prospectus.
"Underwriting Agreement" means the Underwriting Agreement between the
Company and the Underwriters.
"Wal-Mart" means Wal-Mart Corporation.
"Westland Acquisition" means the acquisition of the community shopping
center located in Westland, Michigan for $7.925 million.
76
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
MALAN REALTY INVESTORS, INC.
Pro Forma Condensed Consolidated Financial Information:
Pro Forma Condensed Consolidated Balance Sheet
(Unaudited)............................................ F-2
Pro Forma Condensed Consolidated Statement of Operations
for the Three Months Ended March 31, 1998
(Unaudited)............................................ F-3
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1997 (Unaudited)....... F-4
Consolidated Financial Statements
Independent Auditors' Report of Deloitte & Touche LLP..... F-5
Consolidated Balance Sheets as of December 31, 1997 and
1996 (Audited) and as of March 31, 1998 (Unaudited).... F-6
Consolidated Statements of Operations for Each of the
Three Years in the Period Ended December 31, 1997
(Audited), and for the Three Months Ended March 31,
1998 and 1997
(Unaudited)............................................ F-7
Consolidated Statements of Shareholders' Equity for Each
of the Three Years in the Period Ended December 31,
1997 (Audited), and for the Three Months Ended March
31, 1998 (Unaudited)................................... F-8
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 31, 1997
(Audited), and for the Three Months Ended March 31,
1998 and 1997 (Unaudited).............................. F-9
Notes to Consolidated Financial Statements................ F-10
SANDOR COMMUNITY SHOPPING CENTERS
Combined Financial Statements:
Independent Auditors' Report of Katz, Sapper & Miller,
LLP.................................................... F-21
Midwest Shopping Center Retail Portfolio Combined
Statements of Revenue and Certain Expenses as of
December 31, 1997 (Audited) and March 31, 1998
(Unaudited)............................................ F-22
Midwest Shopping Center Retail Portfolio Note to Combined
Statements of Revenues and Certain Expenses as of
December 31, 1997 (Audited) and March 31, 1997
(Unaudited)............................................ F-23
</TABLE>
F-1
<PAGE> 79
MALAN REALTY INVESTORS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented
as if Malan Realty Investors, Inc. (the "Company") had acquired the Midwest
Shopping Center Retail Portfolio (the "Midwest Acquisition") and had completed
the Offering and related transactions on March 31, 1998. The Midwest Shopping
Center Retail Portfolio consists of the 12 properties acquired in the Sandor
Acquisition and an additional community shopping center in Decatur, Illinois.
Such statement should be read in conjunction with all the financial statements
and notes thereto contained elsewhere in this Prospectus. In management's
opinion, all adjustments necessary to reflect the acquisition and the Offering
and related transactions have been made.
The unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position of the Company
would have been assuming the acquisition and the Offering and related
transactions had been completed on March 31, 1998, nor does it purport to
represent the future financial position of the Company.
<TABLE>
<CAPTION>
THE COMPANY
THE COMPANY MIDWEST THE -----------
HISTORICAL(A) ACQUISITION OFFERING PRO FORMA
------------- ----------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Real estate, net......................... $206,625 $33,700(b) $240,325
Accounts receivable, net................. 2,505 2,505
Deferred financing and other............. 11,876 11,876
Cash and cash equivalents................ 1,585 $ 24,957(c) 6,492
(20,050)(d)
Escrow deposits.......................... 2,014 2,014
-------- ------- -------- --------
Total Assets.......................... $224,605 $33,700 $ 4,907 $263,212
======== ======= ======== ========
LIABILITIES
Mortgages................................ $ 98,739 $33,700(b) $(20,050)(d) $112,389
Convertible debentures................... 55,484 55,484
Convertible notes........................ 27,000 27,000
Deferred income.......................... 2,150 2,150
Accrued distributions payable............ 1,620 1,620
Accounts payable and other............... 1,491 1,491
Accrued property taxes................... 2,045 2,045
Accrued interest payable................. 2,255 2,255
-------- ------- -------- --------
Total Liabilities..................... 190,784 33,700 (20,050) 204,434
-------- ------- -------- --------
STOCKHOLDERS' EQUITY
Common stock............................. 38 15(c) 53
Additional paid in capital............... 51,684 24,942(c) 76,626
Accumulated distributions in excess of
net income............................ (17,901) (17,901)
-------- ------- -------- --------
Total shareholders' equity............ 33,821 0 24,957 58,778
-------- ------- -------- --------
Total Liabilities and Shareholders'
Equity................................ $224,605 $33,700 $ 4,907 $263,212
======== ======= ======== ========
</TABLE>
- -------------------------
(a) Reflects the Company's historical consolidated balance sheet as of March 31,
1998.
(b) On May 29, 1998, the Company acquired for $29.47 million twelve community
shopping centers and agreed to acquire for $4.23 million an additional
community shopping center. The acquisition was funded out of proceeds from
the Greenwich Capital Line and a loan with Bloomfield Acceptance Company.
(c) Represents the proceeds received from the Offering, net of costs associated
with the offering which are estimated at 6% of gross proceeds, assuming a
sale of 1,500,000 shares at $17.70 per share (which represents the 30 day
average stock price through May 27, 1998.) This price is not necessarily
indicative of the price at which the stock will actually be offered.
(d) Represents the expected payoff of the Greenwich Capital Line.
F-2
<PAGE> 80
MALAN REALTY INVESTORS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
The unaudited Pro Forma Condensed Consolidated Statement of Operations for
the three months ended March 31, 1998 is presented as if the Midwest Acquisition
and the Westland Acquisition had occurred on January 1, 1997 and the Offering
and all related transactions had also occurred on that date. Such statement
should be read in conjunction with all the financial statements and notes
thereto contained elsewhere in this Prospectus. In management's opinion, all
adjustments necessary to reflect the acquisitions and the Offering and related
transactions have been made.
The unaudited Pro Forma Condensed Consolidated Statement of Operations is
not necessarily indicative of what the actual results of operations of the
Company would have been assuming the acquisitions and the Offering and related
transactions had been completed as of January 1, 1997, nor does it purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
THE COMPANY MIDWEST WESTLAND THE THE COMPANY
HISTORICAL(A) ACQUISITION(B) ACQUISITION(C) OFFERING PRO FORMA
------------- -------------- -------------- -------- -----------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental income............................... $6,283 $820 $131 $ 7,234
Percentage and overage rents................ 301 301
Recoveries from tenants..................... 2,399 144 4 2,547
------ ---- ---- ----- -------
Total rental revenues....................... 8,983 964 135 10,082
Management and leasing fees................. 12 12
Interest and other income................... 59 7 66
------ ---- ---- ----- -------
Total revenues................................ 9,054 971 135 10,160
OPERATING EXPENSES:
Property operating and maintenance.......... 736 49 6 791
Other operating expenses.................... 347 347
Real estate taxes........................... 1,957 85 2,042
General and administrative.................. 389 389
Depreciation and amortization............... 1,310 190 25 1,525
------ ---- ---- ----- -------
Total operating expenses...................... 4,739 324 31 5,094
------ ---- ---- ----- -------
Operating income.............................. 4,315 647 104 5,066
Interest expense.............................. 4,016 617 104 $(472)(d) 4,265
------ ---- ---- ----- -------
Net income (loss)............................. $ 299 $ 30 $ -- $ 472 $ 801
====== ==== ==== ===== =======
Basic earnings per share(e)................... $ 0.08 $ 0.15
====== =======
Diluted earnings per share(e)................. $ 0.08 $ 0.15
====== =======
</TABLE>
- -------------------------
(a) Reflects the Company's historical consolidated statement of operations for
the three months ended March 31, 1998.
(b) On May 29, 1998, the Company acquired for $29.47 million twelve community
shopping centers and agreed to acquire for $4.23 million an additional
community shopping center. The Midwest Acquisition was funded out of
proceeds of an $18 million loan with Bloomfield Acceptance Company and the
balance from the Greenwich Capital Line. Revenues and expenses other than
depreciation and interest represent historical amounts of the Midwest
Shopping Center Retail Portfolio which include all properties in the Sandor
Acquisition as well as the additional community shopping center.
Depreciation on the new cost basis of the buildings is computed on the
straight line method over a useful life of 40 years. Interest expense was
computed utilizing current terms of Greenwich Capital Line and the loan from
Bloomfield Acceptance Company. A 1/8% increase in the interest rate of the
Greenwich Capital Line would increase the adjustment to interest expense and
decrease the adjustment to net income by $5,000.
(c) In February 1998, the Company acquired the Westland Shopping Center for
$7.925 million. Terms of the agreement included assumption of a $5.9 million
mortgage note and a cash payment of $2.025 million which was funded out of
the Greenwich Capital Line. Revenues and expenses other than depreciation
and interest represent the historical amounts of the Westland Shopping
Center prior to the acquisition. Depreciation on the new cost basis of the
buildings is computed on the straight line method over a useful life of 40
years. Interest expense was computed utilizing the terms of the mortgage
assumed and current terms of the Greenwich Capital Line. A 1/8% increase in
the interest rate of the Greenwich Capital Line would increase the
adjustment to interest expense and decrease the adjustment to net income by
$1,000.
(d) Reflects reduction of interest costs associated with expected paydown of
Greenwich Capital Line from Offering proceeds.
(e) Based on weighted average common shares outstanding of 3,784,022 on a
historical basis and 5,284,022 on a pro forma basis, and on weighted average
common and dilutive shares outstanding of 3,827,971 and 5,327,971 on a
historical and pro forma basis, respectively.
F-3
<PAGE> 81
MALAN REALTY INVESTORS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
The unaudited Pro Forma Condensed Consolidated Statement of Operations for
the twelve months ended December 31, 1997 is presented as if the Midwest
Acquisition and the Westland Acquisition had occurred on January 1, 1997 and the
Offering and all related transactions had also occurred on that date. Such
statement should be read in conjunction with all the financial statements and
notes thereto contained elsewhere in this Prospectus. In management's opinion,
all adjustments necessary to reflect the acquisitions and the Offering and
related transactions have been made.
The unaudited Pro Forma Condensed Consolidated Statement of Operations is
not necessarily indicative of what the actual results of operations of the
company would have been assuming the acquisitions and the Offering and related
transactions had been completed as of January 1, 1997, nor does it purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
THE COMPANY MIDWEST WESTLAND THE THE COMPANY
HISTORICAL(a) ACQUISITION(b) ACQUISITION(c) OFFERING PRO FORMA
------------- -------------- -------------- -------- -----------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Minimum rent............................ $24,092 $3,192 $ 839 $28,123
Percentage and overage rents............ 1,177 1,177
Recoveries from tenants................. 9,271 517 118 9,906
------- ------ ------ ------- -------
Total rental revenues................... 34,540 3,709 957 39,206
Management and leasing fees............. 47 47
Interest and other income............... 396 38 434
------- ------ ------ ------- -------
Total revenues............................ 34,983 3,747 957 39,687
OPERATING EXPENSES:
Property operating and maintenance...... 2,867 308 25 3,200
Other operating expenses................ 1,493 1,493
Real estate taxes....................... 7,891 291 99 8,281
General and administrative.............. 1,545 1,545
Depreciation and amortization........... 5,068 758 149 5,975
------- ------ ------ ------- -------
Total operating expenses.................. 18,864 1,357 273 20,494
------- ------ ------ ------- -------
Operating income.......................... 16,119 2,390 1,134 19,193
Interest expense.......................... 15,576 2,462 617 $(1,317)(d) 17,338
------- ------ ------ ------- -------
Net income (loss)......................... $ 543 $ (72) $ 67 $ 1,317 $ 1,855
======= ====== ====== ======= =======
Basic earnings per share(e)............... $ 0.15 $ 0.37
======= =======
Diluted earnings per share(e)............. $ 0.15 $ 0.36
======= =======
</TABLE>
- -------------------------
(a) Reflects the Company's historical consolidated statement of operations for
the twelve months ended December 31, 1997.
(b) On May 29, 1998, the Company acquired for $29.47 million twelve community
shopping centers and agreed to acquire for $4.23 million an additional
community shopping center. The Midwest Acquisition was funded out of
proceeds of an $18 million loan with Bloomfield Acceptance Company and the
balance from the Greenwich Capital Line. Revenues and expenses other than
depreciation and interest represent historical amounts of the Midwest
Shopping Center Retail Portfolio, which include all properties in the Sandor
Acquisition as well as the additional community shopping center.
Depreciation on the new cost basis of the buildings is computed on the
straight line method over a useful life of 40 years. Interest expense was
computed utilizing current terms of Greenwich Capital Line and the loan from
Bloomfield Acceptance Company. A 1/8% increase in the interest rate of the
Greenwich Capital Line would increase the adjustment to interest expense and
decrease the adjustment to net income by $20,000.
(c) In February 1998, the Company acquired the Westland Shopping Center for
$7.925 million. Terms of the agreement included assumption of a $5.9 million
mortgage note and a cash payment of $2.025 million which was funded out of
the Greenwich Capital Line. Revenues and expenses other than depreciation
and interest represent the historical amounts of the Westland Shopping
Center prior to the acquisition. Depreciation on the new cost basis of the
building is computed on the straight line method over a useful life of 40
years. Interest expense was computed utilizing the terms of the mortgage
assumed and current terms of the Greenwich Capital Line. A 1/8% increase in
the interest rate of the Greenwich Capital Line would increase the
adjustment to interest expense and decrease the adjustment to net income by
$3,000.
(d) Reflects reduction of interest costs associated with expected paydown of
Greenwich Capital Line from Offering proceeds.
(e) Based on weighted average common shares outstanding of 3,545,759 on a
historical basis and 5,045,759 on a pro forma basis, and based on weighted
average common and dilutive shares outstanding of 3,590,985 on a historical
basis and 5,090,985 on a pro forma basis.
F-4
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Malan Realty Investors, Inc.
We have audited the consolidated balance sheets of Malan Realty Investors,
Inc. and subsidiaries (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 30, 1998
F-5
<PAGE> 83
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 --------------------
(UNAUDITED) 1997 1996
----------- ---- ----
<S> <C> <C> <C>
ASSETS:
Real Estate (Note 2):
Land................................................... $ 24,262 $ 22,302 $ 18,296
Buildings and improvements............................. 199,448 193,483 189,294
-------- -------- --------
Total.................................................. 223,710 215,785 207,590
Less: accumulated depreciation......................... (17,085) (15,817) (10,907)
-------- -------- --------
Total.................................................. 206,625 199,968 196,683
Other Assets:
Accounts receivable (net of allowance of $78, $78 and
$96 at March 31, 1998, December 31, 1997 and December
31, 1996)............................................ 2,505 1,608 1,332
Deferred financing and other........................... 11,876 10,705 10,752
Cash and cash equivalents.............................. 1,585 1,717 6,966
Escrow deposits (Note 2)............................... 2,014 2,140 2,119
-------- -------- --------
Total Assets........................................... $224,605 $216,138 $217,852
======== ======== ========
LIABILITIES:
Mortgages (Note 2)........................................ $ 98,739 $ 88,585 $ 83,643
Convertible debentures (Note 2)........................... 55,484 56,680 61,285
Convertible notes (Note 2)................................ 27,000 27,000 27,000
Deferred income (Note 9).................................. 2,150 2,102 2,493
Accrued distributions payable............................. 1,620 1,620 1,472
Accounts payable and other................................ 1,491 845 1,535
Accrued property taxes.................................... 2,045 1,184 1,157
Accrued interest payable.................................. 2,255 4,180 4,274
-------- -------- --------
Total liabilities...................................... 190,784 182,196 182,859
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
SHAREHOLDERS' EQUITY (NOTES 3, 4 AND 8)
Common stock ($.01 par value, 30 million shares
authorized, 3,811,463, 3,737,936 and 3,463,684 shares
issued and outstanding as of March 31, 1998, December
31, 1997 and December 31, 1996)........................ 38 37 35
Additional paid in capital................................ 51,684 50,485 45,960
Accumulated distributions in excess of net income......... (17,901) (16,580) (11,002)
-------- -------- --------
Total shareholders' equity........................... 33,821 33,942 34,993
-------- -------- --------
Total Liabilities and Shareholders' Equity............. $224,605 $216,138 $217,852
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 84
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Minimum rent (Note 5)................. $ 6,283 $ 5,983 $ 24,092 $ 23,836 $ 22,100
Percentage and overage rents.......... 301 304 1,177 1,164 963
Recoveries from tenants............... 2,399 2,513 9,271 9,340 8,662
Interest and other income............. 71 87 443 623 522
--------- --------- --------- --------- ---------
Total Revenues..................... 9,054 8,887 34,983 34,963 32,247
--------- --------- --------- --------- ---------
EXPENSES
Property operating and maintenance.... 736 1,065 2,867 2,769 1,961
Other operating expenses.............. 347 329 1,493 1,481 1,216
Real estate taxes..................... 1,957 1,919 7,891 7,715 7,511
General and administrative............ 389 394 1,545 1,664 1,463
Depreciation and amortization......... 1,310 1,265 5,068 4,920 4,597
--------- --------- --------- --------- ---------
Total Operating Expenses........... 4,739 4,972 18,864 18,549 16,748
--------- --------- --------- --------- ---------
OPERATING INCOME........................ 4,315 3,915 16,119 16,414 15,499
INTEREST EXPENSE........................ 4,016 3,922 15,576 15,815 13,749
--------- --------- --------- --------- ---------
NET INCOME.............................. $ 299 $ (7) $ 543 $ 599 $ 1,750
========= ========= ========= ========= =========
BASIC EARNINGS PER SHARE (NOTE 13)...... $ 0.08 $ (0.00) $ 0.15 $ 0.17 $ 0.49
========= ========= ========= ========= =========
Weighted average common shares
outstanding........................... 3,784,022 3,463,806 3,545,759 3,464,323 3,546,883
========= ========= ========= ========= =========
DILUTED EARNINGS PER SHARE (NOTE 13).... $ 0.08 $ (0.00) $ 0.15 $ 0.17 $ 0.49
========= ========= ========= ========= =========
Weighted average common and dilutive
shares outstanding.................... 3,827,971 3,463,806 3,590,985 3,475,095 3,546,883
========= ========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE> 85
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED DEFERRED
DISTRIBUTIONS IN COMPENSATION TOTAL
PAR ADDITIONAL EXCESS OF -INCENTIVE SHAREHOLDERS'
VALUE PAID-IN CAPITAL NET INCOME SHARES EQUITY
----- --------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............ $38 $49,682 $ (1,444) $(185) $48,091
Amortization of deferred
compensation-incentive shares
(Note 3)....................... 125 125
Conversion of debt securities..... 2 2,398 2,400
Common shares repurchased......... (4) (5,096) (5,100)
Distributions -- $1.70 per
share.......................... (6,023) (6,023)
Net income........................ 1,750 1,750
--- ------- -------- ----- -------
BALANCE, DECEMBER 31, 1995.......... 36 46,984 (5,717) (60) 41,243
Amortization of deferred
compensation-incentive shares
(Note 3)....................... 60 60
Common shares repurchased......... (1) (1,096) (1,097)
Directors compensation paid in
stock.......................... 48 48
Stock options exercised........... 24 24
Distributions -- $1.70 per
share.......................... (5,884) (5,884)
Net income........................ 599 599
--- ------- -------- ----- -------
BALANCE, DECEMBER 31, 1996.......... 35 45,960 (11,002) 34,993
Conversion of debt securities..... 2 4,469 4,471
Directors compensation paid in
stock.......................... 48 48
Stock options exercised........... 8 8
Distributions -- $1.70 per
share.......................... (6,121) (6,121)
Net income........................ 543 543
--- ------- -------- ----- -------
BALANCE, DECEMBER 31, 1997.......... $37 $50,485 $(16,580) $33,942
Conversion of debt securities
(unaudited).................... 1 1,151 1,152
Directors compensation paid in
stock (unaudited).............. 12 12
Stock options exercised
(unaudited).................... 36 36
Distributions -- $.425 per share
(unaudited).................... (1,620) (1,620)
Net income (unaudited)............ 299 299
--- ------- -------- ----- -------
BALANCE, MARCH 31, 1998
(UNAUDITED)....................... $38 $51,684 $(17,901) $33,821
=== ======= ======== ===== =======
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE> 86
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------ --------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss).......................... $ 299 $ (7) $ 543 $ 599 $ 1,750
------- ------- -------- -------- --------
Adjustments to reconcile net income to net
cash flows provided by operating
activities:
Depreciation and amortization........... 1,310 1,265 5,068 4,920 4,597
Amortization of deferred financing
costs................................. 447 383 1,620 1,581 824
Amortization of deferred compensation
expense............................... 60 125
Directors compensation issued in
stock................................. 12 12 48 48
Change in operating assets and
liabilities that provided (used) cash:
Accounts receivable and other......... (2,601) (1,307) (982) (961) 1,225
Accounts payable, deferred income and
other accrued liabilities.......... (370) (2,087) (1,148) 870 20
------- ------- -------- -------- --------
Total adjustments....................... (1,202) (1,734) 4,606 6,518 6,791
------- ------- -------- -------- --------
Net cash flows provided by (used for)
operating activities.................. (903) (1,741) 5,149 7,117 8,541
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate developed, acquired or improved
net of mortgage assumed................. (2,037) (8,195) (1,505) (31,868)
Additions to leasehold improvements and
equipment............................... (8)
Deposits to escrow......................... (4,741) (3,408) (17,274) (17,642) (5,876)
Disbursements from escrow.................. 4,867 3,865 17,253 16,985 4,415
------- ------- -------- -------- --------
Net cash flows provided by (used for)
investing activities.................. (1,911) 457 (8,216) (2,162) (33,337)
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Draws on lines of credit................... 4,350 6,200 15,500
Repayment of lines of credit............... (1,500) (50,250)
Net proceeds from REMIC offering........... 55,751
Principal repayments on mortgages.......... (84) (1,312) (1,428) (91) (88)
Net proceeds from mortgages................ 1,670 12,450
Distributions to shareholders.............. (1,620) (1,472) (5,973) (5,921) (6,121)
Debt issuance costs........................ (1,159)
Proceeds from stock options exercised...... 36 3 8 24
Repurchases of common stock................ (1,096) (5,100)
------- ------- -------- -------- --------
Net cash flows provided by (used for)
financing activities.................. 2,682 (2,781) (2,182) (7,084) 22,142
------- ------- -------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.... (132) (4,065) (5,249) (2,129) (2,654)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD..................................... 1,717 6,966 6,966 9,095 11,749
------- ------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD... $ 1,585 $ 2,901 $ 1,717 $ 6,966 $ 9,095
======= ======= ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION -- Cash paid for interest
during the period.......................... $ 5,515 $ 5,601 $ 14,058 $ 14,139 $ 13,104
======= ======= ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-9
<PAGE> 87
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (AUDITED) AND
THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- The Company is engaged in the ownership, management, leasing,
acquisition, development and redevelopment of shopping centers and entertainment
facilities and leases space to tenants pursuant to lease agreements. The lease
agreements provide for terms ranging from one to 25 years and, in some cases,
for annual rentals which are subject to upward adjustment based on operating
expense levels and sales volume.
Basis of Combination and Principles of Consolidation -- The accompanying
consolidated financial statements include the activity of the Company and its
wholly owned subsidiaries, Malan Mortgagor, Inc., Malan Meadows, Inc. and Malan
Revolver, Inc. All significant inter-company balances and transactions have been
eliminated.
Reclassifications -- Certain reclassifications have been made to prior
years financial statements in order to conform with the current year
presentation.
Real Estate is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided on a straight line
basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings................................................... 40 Years
Land and Building Improvements.............................. 10-40 Years
</TABLE>
Maintenance and repairs are charged to expense as incurred. Renovations
which improve or extend the life of the asset are capitalized.
Deferred Financing and Other consists primarily of deferred financing costs
and lease procurement costs. Deferred financing costs at December 31, 1997 and
1996 of $12,764,000 and $11,738,000, respectively, are amortized on a straight
line basis over the terms of the applicable debt agreements. Accumulated
amortization of deferred financing costs at December 31, 1997 and 1996 was
$4,147,000 and $2,527,000, respectively, and amortization expense for 1997, 1996
and 1995 was $1,620,000, $1,581,000 and $824,000, respectively, and is included
in interest expense in the Consolidated Statements of Operations.
Lease procurement costs of $1,605,000 and $1,176,000 at December 31, 1997
and 1996, respectively, consist of leasing costs, tenant allowances and tenant
improvements and are amortized on a straight line basis over the terms of the
applicable tenant lease. Accumulated amortization of lease procurement costs at
December 31, 1997 and 1996 was $273,000 and $150,000, respectively, and
amortization expense for 1997, 1996 and 1995 was $193,000, $102,000, and
$199,000, respectively.
Revenue Recognition -- Minimum rents are recognized on the straight line
method over the terms of the leases. Percentage rents are recognized as earned.
The leases also typically provide for tenant reimbursement of common area
maintenance and other operating expenses which are included in the accompanying
Consolidated Statements of Operations as recoveries from tenants.
Income received on lease terminations is deferred and recognized on a
straight line basis over the remaining term of the leases involved. Deferred
income related to such terminations was approximately $1,674,000 and $2,187,000
at December 31, 1997 and 1996, respectively, and approximately $577,000,
$428,000 and $71,000 was recognized as rental income for the years ended
December 31, 1997, 1996 and 1995, respectively. Payments received under normal
lease clauses which provide for the acceleration of the lease expiration date
upon receipt of such payment are recognized as income when received.
Income Taxes -- The Company has elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). As a REIT, the Company generally will not be subject to federal
income taxation at the corporate level to the extent it distributes annually at
least 95% of its real estate investment trust taxable income, as defined in the
Code, to its stockholders and satisfies certain
F-10
<PAGE> 88
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
CONTINUED
other requirements. Accordingly, no provision has been made for federal income
taxes in the accompanying financial statements.
Earnings per common share -- The Company adopted Statement of Financial
Accounting Standards (SFAS) No.128, "Earnings per Share," for the year ended
December 31, 1997. SFAS No. 128 replaces the presentation of primary earnings
per share ("EPS") and fully diluted EPS with a presentation of basic EPS and
diluted EPS, respectively. Basic EPS excludes potential share dilution and is
computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution of securities that could share in the earnings
but does not include shares issuable upon conversion of securities that would
have an antidilutive effect on earnings per share. All prior-period EPS data
have been restated. The adoption of this new accounting standard does not have a
material effect on the Company's reported EPS amounts.
Distributions of $1.70 per common share were declared for each of the years
ended December 31, 1997, 1996 and 1995 of which $1.70, $1.34 and $.46,
respectively, represent a return of capital for federal income tax purposes.
Cash and cash equivalents consist of deposits in banks and certificates of
deposit with maturities of three months or less at the date of purchase.
Long-lived assets and long-lived assets to be disposed of -- The Company
accounts for long-lived assets and long-lived assets to be disposed of in
accordance with SFAS No. 121. This statement establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used, and long-lived assets and
certain identifiable intangibles to be disposed of. The Company's assets are
periodically reviewed throughout the year for impairments in value and in
management's opinion no impairments have occurred requiring writedowns during
the years ended December 31, 1997, 1996 and 1995.
Management estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Unaudited interim statements -- The unaudited interim financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial reporting, and the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation of the Company's consolidated financial position, results of
operations and cash flows have been included. The results of such interim
periods are not necessarily indicative of the results of operations for the full
year.
2. MORTGAGES, DEBENTURES AND NOTES
The Company has a $63 million term mortgage loan (the "Securitized Mortgage
Loan") utilizing a real estate mortgage investment conduit (REMIC). The loan is
secured by separate cross-collateralized and cross-defaulted mortgages or deeds
of trust on 25 properties owned by a wholly-owned subsidiary, Malan Mortgagor,
Inc., and matures on August 10, 2002. Payments of interest only are due monthly.
Through the use of interest rate caps and floor agreements, the effective
interest rate is fixed at 7.57% through February 10, 2002; thereafter, the
interest rate on $42 million of the mortgage loans converts to a variable rate
based on certain requirements.
F-11
<PAGE> 89
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. MORTGAGES, DEBENTURES AND NOTES -- CONTINUED
As part of the Securitized Mortgage Loan, the Company must continue to fund
certain up-front reserves on an ongoing basis and request disbursement of funds
as certain requirements are met. The Capital Improvements/Replacement Reserve
requires an annual deposit (funded monthly) equal to $0.20 per qualifying square
foot as defined in the agreement or approximately $575,000 per year. The Basic
Carrying Cost Reserve which is utilized to pay certain real estate taxes, ground
lease payments and insurance payments related to the properties of Malan
Mortgagor, Inc. requires a monthly deposit equal to one-twelfth of the estimated
annual cost of these expenses or approximately $1.3 million per annum.
An additional provision in the agreement provides that in the event that
the long-term debt rating of either of the two major tenants of the
collateralized properties, Kmart or Wal-Mart, is downgraded to 'BB+' or lower,
the Company is required to maintain an additional amount in the Basic Carrying
Cost Reserve equal to 1/4 of the applicable real estate tax obligation borne by
those tenants. In January 1996, the long-term debt rating of Kmart was lowered
to 'BB' and accordingly, the Company was required to make an additional deposit
to the Basic Carrying Cost account of $561,000.
In November 1997, the Company obtained a $25 million secured line of credit
provided by Greenwich Capital Markets, Inc., a division of National Westminister
Bank, Plc. The loan is secured by separate cross-collateralized and
cross-defaulted mortgages or deeds of trust on 16 properties owned by a
wholly-owned subsidiary, Malan Revolver, Inc. The line of credit has a two-year
term, which may be extended for a period of one year and can be expanded up to
$50 million for additional acquisitions. The facility carries an interest rate
of London Interbank Offered Rate ("LIBOR") plus 150 basis points. Payments of
interest only are due monthly. At December 31, 1997, $20.69 million was
available for borrowing under the facility and $4.7 million was outstanding on
the line of credit.
In January 1997, the Company refinanced certain bank debt with an $11.2
million loan with Daiwa Finance Corporation ("Daiwa"). The Daiwa loan is
collateralized by the Company's interest in The Shops at Fairlane Meadows
("Fairlane Meadows") in Dearborn, Michigan and contained an earn-out provision
whereby the property could be revalued and the loan increased if the revised
valuation supported such an increase. In December 1997, pursuant to the earn-out
provision, the Company received an additional $1.67 million from Daiwa and the
loan was increased to $12.796 million. Current terms of the loan call for
monthly payments totaling $96,000 consisting of interest at the rate of 8.18%
per annum and principal amortized over a 30-year life. Real estate tax payments
and an annual replacement reserve of $32,000 are required to be escrowed
monthly. The loan is due in full on February 1, 2007, at which time a balloon
payment of approximately $11.4 million will be due. As part of the loan
agreement with Daiwa, the Company transferred its interest in Fairlane Meadows
to a wholly-owned subsidiary, Malan Meadows, Inc. in January 1997.
The Company has a line of credit with First Chicago NBD totaling $1.5
million. The line is collateralized by the Company's interest in Orchard-14
Shopping Center in Farmington Hills, Michigan and is subject to certain other
restrictions as to its use. The line originally matured on January 23, 1998 but
has been extended to March 23, 1998 for the purpose of providing time to
complete a reappraisal of the property to increase the available loan amount.
Payments of interest only at either the bank's prime rate, or LIBOR plus 200
basis points under certain conditions, are due monthly until maturity. As of
December 31, 1997 there is no outstanding balance on the line.
The Company has outstanding as of December 31, 1997 and 1996 $56.680
million and $61.285 million, respectively, in Convertible Debentures (the
"Debentures") and $27 million in Convertible Notes (the "Notes"). The Debentures
are 10-year unsecured general obligations of the Company due July 15, 2004, have
a coupon rate of interest of 9.5% per annum, payable semiannually and carry a
rating of B3 from Moody's Investors Services, Inc. The Debentures are
convertible, at anytime after issuance and prior to maturity into
F-12
<PAGE> 90
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. MORTGAGES, DEBENTURES AND NOTES -- CONTINUED
shares of Common Stock at the conversion price of $17 per share subject to
adjustment under certain conditions. The Debentures are not redeemable by the
Company prior to July 15, 2001, except for certain reasons intended to protect
the Company's status as a REIT. During 1997, $4.605 million aggregate principal
of Debentures were converted into 270,878 shares of Common Stock.
The Notes are nine-year general obligations due July 15, 2003 secured by a
first mortgage on Bricktown Square in Chicago, Illinois and bear interest at the
rate of 8.5% per annum, payable semiannually and are convertible into shares of
Common Stock at any time after June 24, 2002 at a conversion price of $17 per
share. Prior to this date, the holder may also demand conversion of limited
quantities of the Notes subject to certain timing restrictions.
Net settlement costs paid under interest rate cap agreements are recorded
on an accrual basis and recognized as an adjustment to interest expense.
Several of the above debt agreements contain restrictive financial
covenants, all of which the Company was in compliance with as of December 31,
1997.
The following table sets forth certain information regarding the Company's
debt outstanding as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
BALANCE DECEMBER 31,
MATURITY ---------------------
COLLATERAL INTEREST RATE DATE 1997 1996
---------- ------------- -------- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
MORTGAGES
Greenwich Capital Line of 16 Retail Properties LIBOR + 150 November $ 4,700 $ --
Credit Basis Points 1999
UDAG Loan Bricktown Square 5% increasing March 8,097 8,193
to 9% 2023
Securitized Mortgage Loan 25 Retail Properties 7.57%(1) August 63,000 63,000
2002
Daiwa Finance Corp. The Shops at 8.18% February 12,788 12,450
Fairlane Meadows 2007
------- -------
Total Mortgages $88,585 $83,643
======= =======
CONVERTIBLE DEBENTURES None 9.5% July 2004 $56,680 $61,285
======= =======
CONVERTIBLE NOTES Bricktown Square 8.5% July 2003 $27,000 $27,000
======= =======
</TABLE>
- -------------------------
(1) Overall blended rate. The interest rates on four different tranches are
either fixed or capped through the use of interest rate caps and floors.
Approximate scheduled principal payments for the years subsequent to
December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 193
1999........................................................ 4,908
2000........................................................ 222
2001........................................................ 238
2002........................................................ 63,255
2003 and thereafter......................................... 103,449
--------
Total..................................................... $172,265
========
</TABLE>
F-13
<PAGE> 91
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. INCENTIVE SHARES
Upon completion of its initial public offering, the Company's president and
chief executive officer donated 23,700 shares of Common Stock to be distributed
in varying amounts to substantially all of the Company's employees, subject to
certain forfeiture restrictions. The donation was recorded at its fair market
value as additional paid in capital and deferred compensation expense.
Compensation expense recognized during 1996 and 1995 was $60,000 and $125,000,
respectively. On June 18, 1996 all forfeiture restrictions lapsed and the
unforfeited shares became the unrestricted property of each recipient.
4. WARRANTS AND STOCK OPTION AND COMPENSATION PLANS
Warrants -- In connection with its initial public offering, the Company
issued warrants to National Westminster Bank Plc, New York Branch, an affiliate
of one of the underwriters at the time of the initial public offering, for the
purchase of 353,000 shares of common stock. The warrants are exercisable for a
period of four years commencing June 17, 1995 at a price of $20.40 per share. No
warrants have been exercised.
Employee Option Plan -- The Company has a stock option plan (the "Employee
Option Plan") to enable its employees to participate in the ownership of the
Company. Under the Employee Option Plan, executive officers and employees of the
Company may be granted options to acquire shares of Common Stock of the Company
("Options"). The Employee Option Plan is administered by the compensation
committee of the Board of Directors (the "Board"), which is authorized to select
the executive officers and other employees to whom Options are to be granted. No
member of the compensation committee is eligible to participate in the Employee
Option Plan. The aggregate number of shares of Common Stock that may be issued
upon the exercise of all Options is 400,000 shares.
The exercise price of each Option granted is equal to the aggregate fair
market value of the underlying shares on the date of grant. With the exception
of those granted on the date of the Company's initial public offering, which
vested over a three-year period at the rate of 33 1/3% per year, Options vest
over a five-year period at the rate of 20% per year, beginning on the first
anniversary of the date of grant and are exercisable until the tenth anniversary
of the date of grant.
Directors Option Plan -- In 1995, the Company adopted the 1995 Stock Option
Plan for Non-employee Directors of the Company (the "Directors Option Plan").
Under the Directors Option Plan, each non-employee Director of the Company
received an option to purchase 1,500 shares of Common Stock of the Company
following the 1995 Annual Meeting of the Board. Following each Annual Meeting of
the Board thereafter, each non-employee Director will automatically be granted
an option to purchase 1,000 shares of Common Stock.
All Options granted under the Directors Option Plan will have an exercise
price equal to the fair market value of the underlying shares on the date of the
grant. Each Option granted will vest immediately upon grant but will not become
exercisable by the Director until six months following the date of grant.
Options granted to a Director will remain exercisable until the tenth
anniversary of the date of grant or, if earlier, until one year after the
Director ceases to be a member of the Board for any reason. The aggregate number
of shares that may be issued under the Directors Option Plan is 80,000 shares.
F-14
<PAGE> 92
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. WARRANTS AND STOCK OPTION AND COMPENSATION PLANS -- CONTINUED
The following table summarizes the activity for the Company's Stock Option
Plans:
<TABLE>
<CAPTION>
EMPLOYEE OPTION PLAN DIRECTORS OPTION PLAN
-------------------------------------------- --------------------------------------------
SHARES WEIGHTED SHARES WEIGHTED
SUBJECT EXERCISE PRICE AVG. EXERCISE SUBJECT EXERCISE PRICE AVG. EXERCISE
TO OPTION PER SHARE PRICE TO OPTION PER SHARE PRICE
--------- -------------- ------------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995....... 148,500 $17.000 $17.000
Options Granted 1995........... 101,500 $13.375 $13.375 6,000 $14.500 $14.500
------- ------
Balance, December 31, 1995..... 250,000 $15.528 6,000 $14.500
Options Granted 1996........... 54,000 $14.375-$15.375 $14.449 4,000 $14.375 $14.375
Options Exercised 1996......... (1,708) $14.375 $14.375
------- ------
Balance, December 31, 1996..... 304,000 $13.375-$17.000 $15.383 8,292 $14.375-$14.50 $14.465
Options Granted 1997........... 4,000 $17.125 $17.125
Options Exercised 1997......... (634) $13.375 $13.375
------- ------
Balance December 31, 1997...... 303,366 $13.375-$17.000 $15.383 12,292 $14.375-$17.125 $15.331
======= ======
Options Exercisable at
December 31, 1997............ 199,266 $16.135 12,292 $15.331
======= ======= ====== =======
</TABLE>
In accordance with the Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation", the Company has elected to continue
to report compensation by applying the requirements of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and therefore
has recorded no charge to income for stock options. There would have been no
effect on the Company's pro forma net income and earnings per share for 1997 and
1996 had the Company recognized compensation expense using the Black-Scholes
option pricing model utilizing the following values and weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Option value................................................ $ 0.54 $ 0.03
Dividend yield.............................................. 9.9 % 11.8 %
Expected volatility......................................... 17 % 10 %
Risk-free interest rate..................................... 6 % 6 %
Expected lives (in years)................................... 10 10
</TABLE>
The outstanding stock options at December 31, 1997 have a weighted average
contractual life of 7.97 years.
Stock Compensation Plan -- In order to provide an opportunity for
non-employee Directors to increase their ownership, the Company adopted in May
1995, the 1995 Stock Compensation Plan for Non-employee Directors (the "Stock
Compensation Plan"). Under the Stock Compensation Plan, each non-employee
Director may make an election by June 30 of each year to receive all or a
portion of the Director's compensation for the following calendar year in the
form of Common Stock of the Company in lieu of cash. Once made, the election is
irrevocable for the following year's compensation.
The number of shares of Common Stock to be paid to a Director instead of
cash compensation will be determined based on the closing price of the Common
Stock on the New York Stock Exchange on the day before the compensation is
earned by the Director (i.e., the day before a Board meeting). The plan became
effective January 1, 1996. A maximum of 100,000 shares may be issued under the
Stock Compensation Plan. During 1997 and 1996, a total of 2,740 and 3,272
shares, respectively, were issued under the plan reflecting compensation of
$48,000 in each year.
F-15
<PAGE> 93
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. COMMITMENTS AND CONTINGENCIES
Revenues derived from the Company's major tenant, Kmart, amounted to 39.0%,
38.2% and 46.4% of consolidated revenues arising from lease agreements for the
years ended December 31, 1997, 1996 and 1995, respectively. Amounts receivable
from the major tenant were $56,000 and $47,000 at December 31, 1997 and 1996,
respectively.
Approximate future minimum rent under operating leases for the years
subsequent to December 31, 1997, assuming no new or renegotiated leases or
option extensions, are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 23,792
1999........................................................ 22,539
2000........................................................ 20,599
2001........................................................ 19,381
2002........................................................ 17,247
2003 and thereafter......................................... 104,009
--------
Total..................................................... $207,567
========
</TABLE>
Approximate future minimum rental payments under the terms of all
non-cancelable operating leases in which the Company is the lessee, principally
for ground leases and office rent, subsequent to December 31, 1997, are as
follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 503
1999........................................................ 472
2000........................................................ 442
2001........................................................ 388
2002........................................................ 270
2003 and thereafter......................................... 8,134
-------
Total..................................................... $10,209
=======
</TABLE>
Rent expense for operating leases for the years ended December 31, 1997,
1996 and 1995 was $498,000 $457,000 and $481,000, respectively.
The Company has entered into the following commitments as of December 31,
1997:
<TABLE>
<CAPTION>
ANTICIPATED
APPROXIMATE FUNDING
AMOUNT DATE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Payment of tenant construction allowance on
17-plex theater complex -- North Aurora, IL.... $ 3,835 July 1998
Replacement of roof on one retail building....... 209 May 1998
Redevelopment of existing retail property -- March 1998 -
Lawrence, KS................................... 2,500(1) October 1998
Payment of tenant construction allowance on
10-plex theater complex -- Melrose Park, IL.... 3,773 November 1998
-------
Total............................................ $10,317
=======
</TABLE>
- -------------------------
(1) Contracts awarded as of December 31, 1997
F-16
<PAGE> 94
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. COMMITMENTS AND CONTINGENCIES -- CONTINUED
The Company, as an owner of real estate, is subject to various
environmental laws. Compliance by the Company with existing laws has not had a
material adverse financial effect during the three-year period ended December
31, 1997, nor does management believe it will have a material impact in the
future. However, management cannot predict the impact of new or changed laws or
regulations on its current properties or properties that it may acquire.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined using
available market information and appropriate valuation methodologies. This
disclosure is made as required by SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments".
Cash and Cash Equivalents -- The carrying amount for cash and cash
equivalents approximates fair value due to the short maturity of these
instruments.
Interest Rate Hedging Instruments -- The Company entered into interest rate
agreements to reduce its exposure to changes in the cost of the floating rate
portion of its Securitized Mortgage Loan.
As of December 31, 1997, the following interest rate cap agreements were
outstanding:
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT LIBOR FREQUENCY OF
(IN THOUSANDS) CAP RATE RATE RESETS TERM
- -------------- -------- ------------ ----
<S> <C> <C> <C>
$42,000 6.67% Monthly July 1995 to February 2002
42,000 8.75% Monthly February 2002 to August 2002
</TABLE>
The Company is exposed to credit risk in the event of nonperformance by the
counterparties to its interest rate cap agreements, but has no off-balance sheet
risk of loss. The Company anticipates that its counterparties will fully perform
their obligations under the agreements.
The carrying value of the interest rate caps as of December 31, 1997 and
1996 was $1,310,000 and $1,595,000, respectively, and the fair value was
$890,000 and $1,200,000, respectively.
Mortgages -- The fair value of the mortgages is based on the present value
of contractual cash flows and is as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
UDAG Loan............................................. $ 8,097 $ 4,529 $ 8,193 $ 4,455
Fairlane Meadows Mortgage............................. 12,788 12,788 12,450 12,450
Greenwich Capital Line of Credit...................... 4,700 4,700 -- --
Securitized Mortgage Loan............................. 63,000 63,000 63,000 63,000
------- ------- ------- -------
Total............................................ $88,585 $85,017 $83,643 $79,905
======= ======= ======= =======
</TABLE>
Convertible Debentures and Convertible Notes -- The fair value of the
Convertible Debentures is based on the traded value at the close of business at
year end. The carrying value of the Convertible Debentures as of December 31,
1997 and 1996 is $56.680 million and $61.285 million, respectively. The
estimated fair value based upon the traded value at the close of business on
December 31, 1997 and 1996 was $60.081 million and $60.672 million,
respectively. Management believes that the carrying value of the Convertible
Notes as of December 31, 1997 and 1996 approximates the fair value.
F-17
<PAGE> 95
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. FAIR VALUE OF FINANCIAL INSTRUMENTS -- CONTINUED
The fair value estimates presented herein are based on information
available to management as of December 31, 1997 and 1996. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such financial instruments have not been comprehensively revalued
for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.
7. SIGNIFICANT NONCASH TRANSACTIONS
Significant noncash transactions for the three years ended December 31,
1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Conversion of debentures into 270,878 in 1997 and 147,646 in
1995 shares of common stock, net of unamortized costs..... $4,471 $2,400
Distributions declared not yet paid......................... $1,620 $1,472 $1,509
</TABLE>
8. STOCK REPURCHASE PLAN
In January 1995, the Company's Board of Directors approved a plan to
repurchase up to 755,000 shares of the Company's Common Stock. Under the plan,
any purchases of Common Stock are to be made in the open market or in privately
negotiated transactions subject to SEC rules and regulations regarding such
transactions. During 1996 and 1995, the Company repurchased 91,500 and 376,500
shares, respectively, at an average cost of $11.98 and $13.47, respectively. No
shares were repurchased during the year ended December 31, 1997.
9. DEFERRED INCOME
In September 1995, the Company entered into an agreement with its largest
tenant, Kmart, regarding several stores within its portfolio. Under the
agreement, the Company received a cash payment on October 31, 1995 totaling
approximately $2.56 million as consideration for the termination of leases on
five stores previously closed by Kmart. In addition, the agreement (i) provides
that the Company assume leases at three locations that were subleased by Kmart;
(ii) amends certain lease provisions on four other properties leased by Kmart;
and (iii) allows the Company to develop outlots at seven Kmart properties and
retain all revenue generated from these outlots. The cash payment has been
recorded as deferred income and is being amortized as income on a straight-line
basis over a six-year period which represents the weighted average remaining
base term of the leases involved.
The Company has re-leased two of the closed stores at terms which
approximate the annual revenue received under the previous leases with Kmart and
intends to re-lease the remaining three stores. The Company has also leased two
of the outlots. Management intends to develop and lease the remaining outlots
discussed above. It is possible that the Company may be unable to re-lease the
remaining stores or develop and lease the outlots within the next several years.
Such loss of revenue may have an impact on the Company's future cash flows and
results of operations.
F-18
<PAGE> 96
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. PROPERTY ACQUISITIONS
During the three years ended December 31, 1997, the Company acquired the
following properties:
<TABLE>
<CAPTION>
GROSS
ACQUISITION LEASABLE
DATE PROPERTY LOCATIONS AREA COST
- ----------- -------- --------- -------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
3/1/95 Expansion of Existing Wal-Mart Store..... Washington, IN 21,295 $ 1,625
6/4/95 Clinton Pointe Shopping Center........... Clinton Twp., MI 135,330 12,262
9/16/95 The Shops at Fairlane Meadows............ Dearborn, MI 137,508 16,617
11/24/97 Southwind Theater........................ Lawrence, KS 42,497 4,207
-------- -------
Totals................................... 336,630 $34,711
======== =======
</TABLE>
11. PRO FORMA INFORMATION
The following unaudited table of pro forma information has been presented
as if the acquisitions of Clinton Pointe Shopping Center and The Shops at
Fairlane Meadows had occurred on January 1, 1995. In management's opinion, all
adjustments necessary to reflect the acquisitions of properties have been made.
The pro forma information is not necessarily indicative of what the actual
results of operations of the Company would have been had such transactions
actually occurred as of January 1, 1995, nor do they purport to represent the
results of the operations of the Company for future periods (in thousands except
per share data).
<TABLE>
<CAPTION>
1995
----
<S> <C>
Total revenues.............................................. $35,118
Net income.................................................. $ 1,270
Net income per share........................................ $ 0.36
</TABLE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the periods indicated are as
follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
BASIC EARNINGS DILUTED EARNINGS
1997 REVENUES NET INCOME (LOSS) PER SHARE PER SHARE
---- -------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
March 31................................. $ 8,887 $ (7) $ -- $ --
June 30.................................. 8,528 71 0.02 0.02
September 30............................. 8,787 213 0.06 0.06
December 31.............................. 8,781 266 0.07 0.07
------- ---- ----- -----
Total.................................... $34,983 $543 $0.15 $0.15
======= ==== ===== =====
1996
March 31................................. $ 8,919 $ 87 $0.03 $0.03
June 30.................................. 8,702 120 0.03 0.03
September 30............................. 8,868 220 0.06 0.06
December 31.............................. 8,474 172 0.05 0.05
------- ---- ----- -----
Total.................................... $34,963 $599 $0.17 $0.17
======= ==== ===== =====
</TABLE>
F-19
<PAGE> 97
MALAN REALTY INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
13. EARNINGS PER SHARE
Earnings per share ("EPS") data were computed as follows (in thousands
except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income.................................................. $ 543 $ 599 $1,750
====== ====== ======
BASIC EPS:
Weighted-average shares outstanding......................... 3,546 3,464 3,547
====== ====== ======
Basic earnings per share.................................... $ 0.15 $ 0.17 $ 0.49
====== ====== ======
DILUTED EPS:
Weighted-average shares outstanding......................... 3,546 3,464 3,547
Shares issued upon exercise of dilutive options............. 312 160 --
Shares purchased with proceeds of options................... (267) (149) --
------ ------ ------
Shares applicable to diluted earnings....................... 3,591 3,475 3,547
====== ====== ======
Diluted earnings per share.................................. $ 0.15 $ 0.17 $ 0.49
====== ====== ======
</TABLE>
Diluted EPS reflects the potential dilution of securities that could share
in the earnings but does not include shares issuable upon conversion of
securities that would have an antidilutive effect on earnings per share.
14. SUBSEQUENT EVENTS
In January 1998, the Company entered into an agreement to acquire Westland
Shopping Center in Westland, Michigan for $7.925 million. Terms of the
acquisition include a cash payment of $2.025 million which is anticipated to be
funded out of the Company's line of credit with Greenwich Capital Markets, Inc.
and the assumption of a $5.9 million mortgage with Wells Fargo Bank. The
mortgage calls for monthly payments of interest at the rate of 8.02% per annum
and principal amortized over 30 years and is due in full November 1, 2007.
Subsequent to December 31, 1997 $946,000 aggregate principal of Debentures
were converted into 55,644 shares of common stock.
Subsequent to March 31, 1998, the Company acquired for $29.47 million
twelve community shopping centers and agreed to acquire for $4.23 million an
additional community shopping center. The acquisition was funded out of proceeds
from an $18 million mortgage loan collateralized by the properties and the
balance out of the Company's lines of credit. The mortgage loan is for a term of
15 years and requires monthly payments of interest at the rate of 7.43% per
annum and principal amortized over a 30 year term.
F-20
<PAGE> 98
INDEPENDENT AUDITORS' REPORT
To the Owners
Midwest Shopping Center
Retail Portfolio
We have audited the accompanying combined statement of revenues and certain
expenses (defined as being operating revenues less direct operating expenses) of
the Midwest Shopping Center Retail Portfolio for the year ended December 31,
1997. This combined statement of revenues and certain expenses is the
responsibility of the management of the Midwest Shopping Center Retail
Portfolio. Our responsibility is to express an opinion on this combined
statement of revenues and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of revenues and
certain expenses is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the combined
statement of revenues and certain expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the combined statement of revenues and
certain expenses. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying combined statement of revenues and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Form S-2 of Malan Realty
Investors, Inc. Material amounts, described in Note 1 to the combined statement
of revenues and certain expenses, that would not be comparable to those
resulting from the proposed future operations of the Midwest Shopping Center
Retail Portfolio are excluded and the statement is not intended to be a complete
presentation of the revenues and expenses of these properties.
In our opinion, such combined statement of revenues and certain expenses
presents fairly, in all material respects, the revenues and certain expenses, as
described above, of the Midwest Shopping Center Retail Portfolio for the year
ended December 31, 1997 in conformity with generally accepted accounting
principles.
KATZ, SAPPER & MILLER, LLP
Certified Public Accountants
Indianapolis, Indiana
May 15, 1998
F-21
<PAGE> 99
MIDWEST SHOPPING CENTER RETAIL PORTFOLIO
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1997 (AUDITED) AND
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(UNAUDITED)
<S> <C> <C>
REVENUE:
Minimum rents............................................. $820,203 $3,191,986
Recoveries from tenants................................... 144,097 517,382
Interest and other........................................ 7,315 37,986
-------- ----------
Total Revenues....................................... 971,615 3,747,354
CERTAIN EXPENSES:
Property operating and maintenance........................ 49,229 308,158
Real estate taxes......................................... 85,420 290,560
-------- ----------
Total Expenses....................................... 134,649 598,718
-------- ----------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $836,966 $3,148,636
======== ==========
</TABLE>
See Accompanying Note to Combined Statements of Revenues and Certain Expenses.
F-22
<PAGE> 100
MIDWEST SHOPPING CENTER RETAIL PORTFOLIO
NOTE TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1997 (AUDITED) AND
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Midwest Shopping Center Retail Portfolio ("Properties") consists of
thirteen retail shopping center properties located throughout the Midwestern
United States. Revenue is derived primarily from noncancelable operating lease
agreements that provide for payment of guaranteed minimum rent and other
miscellaneous charges to cover certain operating expenses and have terms which
range up to six years.
The owners of the Portfolio have entered into an agreement to sell the
Properties to Malan Realty Investors, Inc. for an aggregate sales price of $33.7
million. Closing on twelve of the properties is expected to occur on or before
May 29, 1998, while closing on the one remaining property is expected to occur
on or before November 30, 1998.
Basis of Presentation. Operating revenues and certain direct operating
expenses are presented on the accrual basis of accounting. The accompanying
combined statements of revenues and certain expenses are not representative of
the actual operations for the periods presented because certain expenses which
may not be comparable to the expenses expected to be incurred by Malan Realty
Investors in the proposed future operations of the Properties have been
excluded. Expenses excluded are interest, depreciation and amortization,
management fees and other costs not directly related to the future operations of
the Properties.
Revenue Recognition. Minimum rents are recorded on the straight-line method
over the terms of the related leases. Percentage rents are recognized as earned
on the accrual basis over the terms of the leases. The leases also typically
provide for tenant reimbursement of common areas maintenance and other operating
expenses which are included in the accompanying combined statement of revenues
and certain expenses as recoveries from tenants.
The approximate future minimum rent revenues under operating leases for
years subsequent to December 31, 1997, assuming no new or renegotiated leases,
or option extensions are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 3,348,469
1999........................................................ 3,228,387
2000........................................................ 2,882,358
2001........................................................ 2,137,549
2002........................................................ 1,393,077
2003 and thereafter......................................... 1,719,107
-----------
Total.................................................. $14,708,947
===========
</TABLE>
Unaudited Interim Statements: The unaudited interim combined statement of
revenue and certain expenses has been prepared in accordance with the accounting
policies described above. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the combined statement of revenues and certain expenses for the
interim period have been made. The results for the interim period are not
necessarily indicative of the results for a full fiscal year.
F-23
<PAGE> 101
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
Malan Realty Investors, Inc. (the "Registrant") estimates that expenses
payable by the Registrant in connection with the sale of the securities being
registered (other than underwriting discounts and commissions) will be as
follows:
<TABLE>
<S> <C>
Registration Fee............................................ $ 9,013
Printing.................................................... 125,000
Legal Fees and Expenses..................................... 135,000
NASD Fee.................................................... 3,555
NYSE Additional Listing Fee................................. 5,250
Accounting Fees and Expenses................................
Blue Sky Fees and Expenses.................................. 1,000
Transfer Agent Fees.........................................
Miscellaneous...............................................
--------
Total.................................................. $
========
</TABLE>
(1) All amounts except the registration fee are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation provide that no director of the
Registrant shall be liable to the Registrant or the shareholders for monetary
damages for breach of the director's fiduciary duty. Such provision does not
limit a director's liability to the Registrant or its shareholders resulting
from:
(i) breach of the director's duty of loyalty to the Registrant or its
shareholders;
(ii) acts or omissions of the director not in good faith or that
involve intentional misconduct or knowing violation of law;
(iii) a violation of Section 551(1) of the Michigan Business Corporation
Act (relating to unlawful payments of distributions);
(iv) a transaction from which the director derived an improper personal
benefit; or
(v) any act or omission occurring prior to November 20, 1992.
The Registrant's Articles of Incorporation provide for mandatory
indemnification by the Registrant of its directors (including directors of
subsidiaries) to the fullest extent permitted or not prohibited by existing law
or to such greater extent as may be permitted or not prohibited under succeeding
provisions of law. The Registrant's Articles of Incorporation provide that the
Registrant shall pay the expenses incurred by a director of the Registrant
(including a director of a subsidiary) in defending a civil or criminal action,
suit, or proceeding involving such person's acts or omissions as a director of
the Registrant (or of a subsidiary).
The Registrant's Articles of Incorporation authorize the Registrant to
indemnify any officer of the Registrant (or of a subsidiary), if such person
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Registrant or its shareholders and,
with respect to a criminal action or proceeding, if the person had no reasonable
cause to believe his or her conduct was unlawful. Unless ordered by a court,
indemnification of an officer shall be made by the Registrant only as authorized
in a specific case upon the determination that indemnification of the officer is
proper in the circumstances because he or she has met the applicable standard of
conduct. Such determination shall be made (i) by majority vote of the directors
of the Registrant who are not parties to the action, suit or proceeding, (ii) by
independent legal counsel in a written opinion, or (iii) by the shareholders of
the Registrant. The Registrant's Articles of Incorporation authorize the
Registrant to pay the expenses incurred by an officer in defending a civil or
criminal action, suit, or proceeding in advance of the final disposition
thereof,
II-1
<PAGE> 102
upon receipt of an undertaking by or on behalf of such officer to repay the
expenses if it is ultimately determined that the person is not entitled to be
indemnified by the Registrant. Such undertaking shall be by unlimited general
obligation of the person on whose behalf advances are made but need not be
secured.
The Registrant has the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee, or agent of the
Registrant or is liable as a director of the Registrant, or is or was serving,
at the request of the Registrant, as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, regardless of whether the
Registrant would have power to indemnify him against such liability.
The Registrant has purchased a policy of directors' and officers' insurance
that insures both the Registrant and its officers and directors against expenses
and liabilities of the type normally insured against under such policies,
including the expense of the indemnifications described above.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
1 -- Form of Underwriting Agreement.
3(a) -- Amended and Restated Articles of Incorporation of Malan
Realty Investors, Inc. (incorporated herein by reference to
Exhibit 3(a) filed with the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994 (the "1994
Second Quarter Form 10-Q").
3(b) -- By-Laws of Malan Realty Investors, Inc. (incorporated herein
by reference to Exhibit 3(b) filed with the 1994 Second
Quarter Form 10-Q).
4(a) -- Indenture, dated as of June 24, 1994, between Malan Realty
Investors, Inc. and The Bank of New York, as Trustee, with
respect to the 9 1/2% Convertible Subordinated Debentures
due 2004 (incorporated herein by reference to Exhibit 4(a)
filed with the 1994 Second Quarter Form 10-Q).
4(b) -- Indenture, dated as of June 24, 1994, between Malan Realty
Investors, Inc. and IBJ Schroeder, as Trustee, with respect
to the 8 1/2% Secured Convertible Notes due 2003
(incorporated herein by reference to Exhibit 4(b) filed with
the 1994 Second Quarter Form 10-Q).
5 -- Opinion of Miro Weiner & Kramer, counsel to Registrant, as
to the validity of the Securities.
8 -- Opinion of Miro Weiner & Kramer, counsel to Registrant, as
to certain tax matters.
10(a) -- The Malan Realty Investors, Inc. 1994 Stock Option Plan
(incorporated herein by reference to Exhibit 10(a) filed
with the 1994 Second Quarter Form 10-Q).
10(b) -- Employment Agreement, dated as of June 25, 1994, between
Malan Realty Investors, Inc. and Anthony S. Gramer
(incorporated herein by reference to Exhibit 10(b) filed
with the 1994 Second Quarter Form 10-Q).
10(c) -- Note Purchase Agreement, dated as of June 24, 1994, between
Malan Realty Investors Inc. and Merrill Lynch Global
Allocation Fund, Inc. (incorporated herein by reference to
Exhibit 10(e) filed with the 1994 Second Quarter Form 10-Q).
10(d) -- Warrant Agreement, dated as of June 17, 1994, between Malan
Realty Investors, Inc. and National Westminster Bank Plc,
New York Branch (incorporated herein by reference to Exhibit
10(f) filed with the 1994 Second Quarter Form 10-Q).
10(e) -- Mortgage, Security Agreement, Assignment of Rents and
Financing Statement, dated as of June 24, 1994, made by
Malan Realty Investors, Inc. to IBJ Schroeder Bank & Trust
Company, as modified by First Modification of Mortgage,
Security Agreement, Assignment of Rents and Financing
Statement, dated as of August 1, 1994 (incorporated herein
by reference to Exhibit 10(g) filed with the 1994 Second
Quarter Form 10-Q).
</TABLE>
II-2
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
10(f) -- Registration Rights Agreement, dated as of June 24, 1994,
between Malan Realty Investors, Inc. and Merrill Lynch
Global Allocation Fund, Inc. (incorporated herein by
reference to Exhibit 10(h) filed with the 1994 Second
Quarter Form 10-Q).
10(g) -- Malan Realty Investor, Inc. 1995 Stock Option Plan for
Non-Employee Directors (incorporated herein by reference to
Exhibit 10(p) filed with the 1994 Form 10-K).
10(h) -- Malan Realty Investors, Inc. 1995 Stock Compensation Plan
for Non-Employee Directors (incorporated herein by reference
to Exhibit 10(q) filed with the 1994 Form 10-K).
10(i) -- Purchase and Sale Agreement, dated as of April 13, 1995,
between Malan Realty Investors, Inc. and Clinton Pointe
Joint Venture (incorporated herein by reference to Exhibit
10(s) filed with the 1995 First Quarter Form 10-Q).
10(j) -- Agreement of Sale and Purchase, dated as of July 18, 1995,
among TG-Ford Associates and Ford Motor Land Development
Corporation, collectively, and Malan Realty Investors, Inc.
(incorporated herein by reference to Exhibit 10(x) filed
with the 1995 Second Quarter Form 10-Q).
10(k) -- $63,000,000 Amended and Restated Credit Agreement, dated as
of August 16, 1995, between Malan Realty Investors, Inc. and
National Westminster Bank Plc, New York Branch (incorporated
herein by reference to Exhibit 10(y) filed with Malan Realty
Investors, Inc.'s Amended Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 1995 (the "1995 Third
Quarter Form 10-Q/A")).
10(l) -- $63,000,000 Malan Mortgage Securities Trust 1995-A, Trust
and Servicing Agreement, dated as of August 16, 1995, by and
among Malan Depositor, Inc., as Depositor, Banker's Trust
Company, as Servicer, and Marine Midland Bank, as Trustee
(incorporated herein by reference to Exhibit 10(z) field
with the 1995 Third Quarter Form 10-Q/A).
10(m) -- First Amendment to Employment Agreement, dated as of August
15, 1997 between the Company and Anthony S. Gramer
(incorporated herein by reference to Exhibit 10(m) filed
with the 1997 Form 10-K).
10(n) -- Change in Control Agreement, dated as of August 15, 1997
between the Company and Michael K. Kaline (incorporated
herein by reference to Exhibit 10(n) filed with the 1997
Form 10-K).
10(o) -- Change in Control Agreement, dated as of August 15, 1997
between the Company and Elliott Broderick (incorporated
herein by reference to Exhibit 10(o) filed with the 1997
Form 10-K).
10(p) -- Revolving Loan Agreement among Malan Revolver Inc., as
Company, Malan Realty Investors, Inc. as Parent and
Greenwich Capital Markets, Inc. as Lender dated as of
November 24, 1997 (incorporated herein by reference to
Exhibit 10(p) filed with the 1997 Form 10-K).
10(q) -- Agreement for Purchase of Real Estate between Brandon
Associates Westland, L.L.C., "Seller" and Malan Realty
Investors, Inc., "Buyer" dated as of January 29, 1998
(incorporated herein by reference to Exhibit 10(q) filed
with the 1997 Form 10-K).
10(r) -- Agreement of Sale and Purchase between Sandor Development
Company, as agent for sellers, and Malan Realty Investors,
Inc., as buyer dated as of May 6, 1998.
10(s) -- Loan Agreement among Malan Midwest, L.L.C., and Bloomfield
Acceptance Company, L.L.C., dated as of May 27, 1998.
23(a) -- Consent of Deloitte & Touche LLP.
23(b) -- Consent of Miro Weiner & Kramer (included in Exhibits 5 and
8).
23(c) -- Consent of Katz, Sapper & Miller, LLP.
24 -- Powers of Attorney.
</TABLE>
II-3
<PAGE> 104
ITEM 17. UNDERTAKINGS.
A. Rule 415 Offering.
The Registrant undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in this
Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the
termination of the offering.
Paragraphs (1)(i) and (1)(ii) above do not apply if the information required to
be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
B. Filings Incorporating Subsequent Exchange Act Documents by Reference.
The Registrant undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and where applicable each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the 1934 Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Request for Acceleration of Effective Date or Filing of Registration
Statement on Form S-8.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the 1933 Act and
is, therefor, unenforceable. In the event that claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by
II-4
<PAGE> 105
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to supplement the Prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the Prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
II-5
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Birmingham, State of Michigan, on the 29th day of
May, 1998.
MALAN REALTY INVESTORS, INC.
By: /s/ ANTHONY S. GRAMER
------------------------------------
Anthony S. Gramer, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANTHONY S. GRAMER President, Chief Executive May 29, 1998
- ----------------------------------------------------- Officer, and Director
Anthony S. Gramer
/s/ ELLIOTT J. BRODERICK Chief Accounting Officer May 29, 1998
- -----------------------------------------------------
Elliott J. Broderick
* Director May 29, 1998
- -----------------------------------------------------
Robert D. Kemp, Jr.
* Director May 29, 1998
- -----------------------------------------------------
William McBride III
* Director May 29, 1998
- -----------------------------------------------------
William F. Pickard
* Director May 29, 1998
- -----------------------------------------------------
Richard T. Walsh
*By: /s/ ELLIOTT J. BRODERICK
------------------------------------------------
Elliott J. Broderick
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 107
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
1 -- Form of Underwriting Agreement.
3(a) -- Amended and Restated Articles of Incorporation of Malan
Realty Investors, Inc. (incorporated herein by reference to
Exhibit 3(a) filed with the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994 (the "1994
Second Quarter Form 10-Q").
3(b) -- By-Laws of Malan Realty Investors, Inc. (incorporated herein
by reference to Exhibit 3(b) filed with the 1994 Second
Quarter Form 10-Q).
4(a) -- Indenture, dated as of June 24, 1994, between Malan Realty
Investors, Inc. and The Bank of New York, as Trustee, with
respect to the 9 1/2% Convertible Subordinated Debentures
due 2004 (incorporated herein by reference to Exhibit 4(a)
filed with the 1994 Second Quarter Form 10-Q).
4(b) -- Indenture, dated as of June 24, 1994, between Malan Realty
Investors, Inc. and IBJ Schroeder, as Trustee, with respect
to the 8 1/2% Secured Convertible Notes due 2003
(incorporated herein by reference to Exhibit 4(b) filed with
the 1994 Second Quarter Form 10-Q).
5 -- Opinion of Miro Weiner & Kramer, counsel to Registrant, as
to the validity of the Securities.
8 -- Opinion of Miro Weiner & Kramer, counsel to Registrant, as
to certain tax matters.
10(a) -- The Malan Realty Investors, Inc. 1994 Stock Option Plan
(incorporated herein by reference to Exhibit 10(a) filed
with the 1994 Second Quarter Form 10-Q).
10(b) -- Employment Agreement, dated as of June 25, 1994, between
Malan Realty Investors, Inc. and Anthony S. Gramer
(incorporated herein by reference to Exhibit 10(b) filed
with the 1994 Second Quarter Form 10-Q).
10(c) -- Note Purchase Agreement, dated as of June 24, 1994, between
Malan Realty Investors Inc. and Merrill Lynch Global
Allocation Fund, Inc. (incorporated herein by reference to
Exhibit 10(e) filed with the 1994 Second Quarter Form 10-Q).
10(d) -- Warrant Agreement, dated as of June 17, 1994, between Malan
Realty Investors, Inc. and National Westminster Bank Plc,
New York Branch (incorporated herein by reference to Exhibit
10(f) filed with the 1994 Second Quarter Form 10-Q).
10(e) -- Mortgage, Security Agreement, Assignment of Rents and
Financing Statement, dated as of June 24, 1994, made by
Malan Realty Investors, Inc. to IBJ Schroeder Bank & Trust
Company, as modified by First Modification of Mortgage,
Security Agreement, Assignment of Rents and Financing
Statement, dated as of August 1, 1994 (incorporated herein
by reference to Exhibit 10(g) filed with the 1994 Second
Quarter Form 10-Q).
10(f) -- Registration Rights Agreement, dated as of June 24, 1994,
between Malan Realty Investors, Inc. and Merrill Lynch
Global Allocation Fund, Inc. (incorporated herein by
reference to Exhibit 10(h) filed with the 1994 Second
Quarter Form 10-Q).
10(g) -- Malan Realty Investor, Inc. 1995 Stock Option Plan for
Non-Employee Directors (incorporated herein by reference to
Exhibit 10(p) filed with the 1994 Form 10-K).
10(h) -- Malan Realty Investors, Inc. 1995 Stock Compensation Plan
for Non-Employee Directors (incorporated herein by reference
to Exhibit 10(q) filed with the 1994 Form 10-K).
10(i) -- Purchase and Sale Agreement, dated as of April 13, 1995,
between Malan Realty Investors, Inc. and Clinton Pointe
Joint Venture (incorporated herein by reference to Exhibit
10(s) filed with the 1995 First Quarter Form 10-Q).
10(j) -- Agreement of Sale and Purchase, dated as of July 18, 1995,
among TG-Ford Associates and Ford Motor Land Development
Corporation, collectively, and Malan Realty Investors, Inc.
(incorporated herein by reference to Exhibit 10(x) filed
with the 1995 Second Quarter Form 10-Q).
</TABLE>
<PAGE> 108
<TABLE>
<S> <C> <C>
10(k) -- $63,000,000 Amended and Restated Credit Agreement, dated as of August 16, 1995, between Malan Realty
Investors, Inc. and National Westminster Bank Plc, New York Branch (incorporated herein by reference
to Exhibit 10(y) filed with Malan Realty Investors, Inc.'s Amended Quarterly Report on Form 10-Q/A for
the quarter ended September 30, 1995 (the "1995 Third Quarter Form 10-Q/A")).
10(l) -- $63,000,000 Malan Mortgage Securities Trust 1995-A, Trust and Servicing Agreement, dated as of August
16, 1995, by and among Malan Depositor, Inc., as Depositor, Banker's Trust Company, as Servicer, and
Marine Midland Bank, as Trustee (incorporated herein by reference to Exhibit 10(z) field with the 1995
Third Quarter Form 10-Q/A).
10(m) -- First Amendment to Employment Agreement, dated as of August 15, 1997 between the Company and Anthony
S. Gramer (incorporated herein by reference to Exhibit 10(m) filed with the 1997 Form 10-K).
10(n) -- Change in Control Agreement, dated as of August 15, 1997 between the Company and Michael K. Kaline
(incorporated herein by reference to Exhibit 10(n) filed with the 1997 Form 10-K).
10(o) -- Change in Control Agreement, dated as of August 15, 1997 between the Company and Elliott Broderick
(incorporated herein by reference to Exhibit 10(o) filed with the 1997 Form 10-K).
10(p) -- Revolving Loan Agreement among Malan Revolver, Inc., as Company, Malan Realty Investors, Inc. as
Parent and Greenwich Capital Markets, Inc. As Lender dated as of November 24, 1997 (incorporated
herein by reference to Exhibit 10(p) filed with the 1997 Form 10-K).
10(q) -- Agreement For Purchase of Real Estate between Brandon Associates Westland, L.L.C., "Seller" and Malan
Realty Investors, Inc., "Buyer" dated as of January 29, 1998 (incorporated herein by reference to
Exhibit 10(q) filed with the 1997 Form 10-K).
10(r) -- Agreement of Sale and Purchase between Sandor Development Company, as agent for sellers, and Malan
Realty Investors, Inc., as buyer dated as of May 6, 1998.
10(s) -- Loan Agreement among Malan Midwest, L.L.C., and Bloomfield Acceptance Company, L.L.C., dated as of May
29, 1998.
23(a) -- Consent of Deloitte & Touche LLP.
23(b) -- Consent of Miro Weiner & Kramer (included in Exhibits 5 and 8).
23(c) -- Consent of Katz, Sapper & Miller, LLP.
24 -- Powers of Attorney (filed previously with Registration Statement 333-48937, filed March 31, 1998).
</TABLE>
<PAGE> 1
EXHIBIT 1
MALAN REALTY INVESTORS, INC.
1,500,000 Shares of Common Stock
UNDERWRITING AGREEMENT
_____________, 1998
RONEY & CO., L.L.C.
FIRST OF MICHIGAN CORPORATION
As Representatives of the Several
Underwriters Named in Schedule 3
c/o Roney & Co., L.L.C.
One Griswold
Detroit, Michigan 48226
Ladies and Gentlemen:
Malan Realty Investors, Inc., a Michigan corporation (the "Company"),
hereby confirms its agreement with Roney & Co., L.L.C., First of Michigan
Corporation (the "Representatives") and the several Underwriters named in
Schedule 3 (the "Underwriters") as set forth below.
1. Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Underwriters an
aggregate of 1,5000,000 shares (the "Firm Shares") of its Common Stock (the
"Common Stock"). The Company also proposes to issue and sell to the
Underwriters not more than an aggregate of 225,000 shares of additional
Common Stock if requested by the Underwriters as provided in Section 3 of this
Agreement. Any and all Common Stock to be purchased by the Underwriters
pursuant to such option is referred to in this Agreement as the "Option
Shares," and the Firm Shares and any Option Shares are collectively referred to
in this Agreement as the "Shares."
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) The Company meets the requirements for use of Form S-2
under the Securities Act of 1933, as amended, and the rules and regulations of
the Securities and Exchange Commission (the "Commission") thereunder
(collectively, the "Act"). A registration statement on such Form (File No.
333-________) with respect to the Shares of the Company, including a prospectus
subject to completion, has been prepared and filed by the Company with the
Commission in accordance with the provisions of the Act, and one or more
amendments to such registration statement may have been so filed. As soon as
practicable after the execution of this Agreement, the Company will file with
the Commission either (1) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the
<PAGE> 2
Act, a prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are required by
Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by the Underwriters prior to the execution of
this Agreement, or (2) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the Act,
an amendment to such registration statement, including a form of prospectus, a
copy of which amendment has been furnished to and approved by the Underwriters
prior to the execution of this Agreement. As used in this Agreement, the term
"Registration Statement" means such registration statement, as amended at the
time when it was or is declared effective, and, in the event of any amendment
to such registration statement after the effective date and before the Firm
Closing Date and any Option Closing Date (as defined in Sections 3(a) and 3(b),
respectively), such registration statement as so amended, but only from and
after the effectiveness of such amendment, including (1) all financial
statements, schedules and exhibits thereto, (2) all documents (or portions
thereof) incorporated by reference therein filed under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and (3) any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus
(as hereinafter defined). As used in this Agreement, the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective), including all
documents (or portions thereof) incorporated by reference therein filed under
the Exchange Act. As used in this Agreement, the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act or, if no prospectus is required to be filed pursuant to said Rule 424(b),
such term means the prospectus included in the Registration Statement, at the
time the Registration Statement or any amendment thereto became effective, and,
in the event of any supplement or amendment to such prospectus before the Firm
Closing Date and any Option Closing Date, such prospectus as so supplemented or
amended but only from and after the filing with the Commission of such
supplement or the effectiveness of such amendment, in any case including all
documents (or portions thereof) incorporated by reference therein filed under
the Exchange Act.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When any Preliminary
Prospectus was filed with the Commission, it (1) contained all statements
required to be stated therein in accordance with, and complied in all material
respects with the requirements of, the Act, the Exchange Act and the respective
rules and regulations of the Commission thereunder and (2) did not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared effective
and at all times subsequent thereto up to and including the Firm Closing Date
and any Option Closing Date, it (1) contained or will contain all statements
required to be stated therein in accordance with, and complied or will comply
in all material respects with the requirements of, the Act, the Exchange Act
and the respective rules and regulations of the Commission thereunder and (2)
did not or will not include any untrue statement of a material fact or omit to
state any material fact required to
2
<PAGE> 3
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. When the Prospectus
or any amendment or supplement thereto is filed with the Commission pursuant to
Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or is
declared effective), on the date when the Prospectus is otherwise amended or
supplemented and at all times subsequent thereto up to and including the Firm
Closing Date and any Option Closing Date (as defined in Sections 3(a) and 3(b),
respectively), the Prospectus, as amended or supplemented at any such time, (1)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act, the Exchange Act and the respective rules and
regulations of the Commission thereunder and (2) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made
in any Preliminary Prospectus, the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
you specifically for use therein.
(c) The Company's only subsidiaries are listed on Schedule 1
to this Agreement. The Company and each of its subsidiaries are validly
existing as corporations in good standing under the laws of their respective
jurisdictions of incorporation and are duly qualified to transact business as
foreign corporations and are in good standing under the laws of all other
jurisdictions where the ownership or leasing of their respective properties or
the nature or conduct of their respective businesses requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
(d) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus; and the Company has full power (corporate and other) to
enter into this Agreement and to carry out all the terms and provisions of this
Agreement to be carried out by it.
(e) The authorized, issued and outstanding shares of capital
stock of each of the Company's subsidiaries are set forth on Schedule 2 to this
Agreement. Such issued and outstanding shares have been duly authorized and
validly issued, are fully paid and nonassessable and are all owned beneficially
by the Company free and clear of all restrictions on transfer (other than those
imposed by the Act and the securities or Blue Sky laws of various
jurisdictions) and any security interests, liens, encumbrances, equities and
claims.
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary
3
<PAGE> 4
Prospectus, under the caption "Capitalization". All of the issued and
outstanding shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable and free of preemptive
rights and contractual rights to purchase (to the extent the Company or any of
its subsidiaries is a party to such contract). No holder of outstanding shares
of capital stock of the Company is entitled as such to any preemptive or other
rights to subscribe for any of the Shares, and no holder of securities of the
Company has any right which has not been fully exercised or waived to require
the Company to register the offer or sale of any securities owned by such
holder under the Act in the public offering contemplated by this Agreement.
(g) The capital stock of the Company conforms to the
description thereof contained in the Registration Statement and the Prospectus
or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus.
(h) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) fairly present the financial condition of
the Company and its consolidated subsidiaries and the results of operations and
cash flows as of the dates and periods therein specified. Such financial
statements and schedules have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved (except as otherwise noted therein). The selected financial data set
forth under the caption "Selected Consolidated Financial Data" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, on the basis stated in the Prospectus
(or such Preliminary Prospectus), the information included therein.
(i) Deloitte & Touche LLP, which have certified certain
financial statements of the Company and its consolidated subsidiaries and
delivered their report with respect to the audited consolidated financial
statements and schedules included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), are independent public accountants as required by the
Act, the Exchange Act and the related published rules and regulations
thereunder.
(j) The execution and delivery of this Agreement have been
duly authorized by the Company. This Agreement has been duly executed and
delivered by the Company, and assuming due execution by the other parties to
this Agreement, is the legal, valid and binding agreement of the Company,
enforceable by any such party against the Company in accordance with its terms,
except as (i) enforcement thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting enforcement of creditors' rights
generally, (ii) enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law), and (iii) rights to indemnification may be limited by applicable law.
(k) No legal or governmental proceedings are pending or, to
the best of the Company's knowledge, threatened, to which the Company or any of
its subsidiaries is a party or
4
<PAGE> 5
to which the property of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the Prospectus
and are not described therein (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). No contract or other document is required
to be described in the Registration Statement or the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) or to
be filed as an exhibit to the Registration Statement that is not described
therein or filed as required.
(l) The execution and delivery of this Agreement, the
issuance, offering and sale of the Shares to the Underwriters by the Company
pursuant to this Agreement, the compliance by the Company with the other
provisions of this Agreement and the consummation of the other transactions
contemplated by this Agreement do not (1) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained, such as may be required under
state securities or blue sky laws and, if the Registration Statement (as
amended) filed with respect to the Shares is not effective under the Act as of
the time of execution of this Agreement, such as may be required (and shall be
obtained as provided in this Agreement) under the Act, or (2) conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or any of their
respective properties are bound, or the Articles of Incorporation, bylaws or
other charter or governing documents of the Company or any of its subsidiaries,
or any statute or any judgment, decree, order, rule or regulation of any court
or other governmental authority or any arbitrator or any other laws applicable
to the Company, any of its subsidiaries or any of their respective properties.
(m) The Company has not, directly or indirectly, (1) taken any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares or (2) since the filing of the registration statement originally
filed with respect to the Shares (A) sold (except for sales of Common Stock
upon exercise of stock options or warrants), bid for, purchased, or paid anyone
any compensation for soliciting purchases of, the Shares or (B) paid or agreed
to pay to any person any compensation for soliciting another to purchase any
other securities of the Company.
(n) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), (1)
the Company and its subsidiaries have not incurred any material liability or
obligation, direct or contingent, nor entered into any material transaction not
in the ordinary course of business; (2) the Company has not purchased any of
its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (3) there has
not been any change in the capital stock (except for sales of Common Stock upon
exercise of stock options or warrants), short-term debt (other than as incurred
or repaid in the ordinary course of business) or long-term debt of the Company
and its consolidated subsidiaries or any material loss or damage to the
property of the Company or any
5
<PAGE> 6
of its subsidiaries, any material adverse change in the condition (financial or
otherwise), business, results of operations, cash flows or prospects of the
Company and its subsidiaries, taken as a whole, except in each case as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(o) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and good and
marketable title to all personal property owned by each of them or described in
the Prospectus as owned by them, in each case free and clear of any security
interests, liens, encumbrances, equities, claims, charges, restrictions and
other defects, except for those security interests, liens or encumbrances that
exist in connection with loans made by ___________ or ______________ and
reflected on the Company's financial statements included in the Prospectus, and
except such as do not, singly or in the aggregate, materially and adversely
affect the condition (financial or otherwise), business, prospects, net worth,
results of operations or cash flows of the Company and its subsidiaries or the
value of such property and do not interfere with the use made or proposed to be
made of such property by the Company or such subsidiary, and any real and
personal property and buildings held under lease by the Company or any such
subsidiary are held under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made or
proposed to be made of such property and buildings by the Company or such
subsidiary, in each case mentioned in this paragraph except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). The Company and its subsidiaries own or
lease all properties as are necessary to their respective operations as now
conducted and, except as otherwise stated in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), as
proposed to be conducted as set forth in the Prospectus.
(p) No labor dispute with the employees of the Company or any
of its subsidiaries exists or is threatened or imminent that could result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth, results of operations or cash flows of the Company and
its subsidiaries, except as described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus).
(q) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed by them in connection with
their respective businesses, and neither the Company nor any such subsidiary
has received any notice of infringement of or conflict with asserted rights of
any third party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, is
expected to result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth, results of operations or cash flows
of the Company and its subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The expiration of any trademarks, copyrights or
patents held or used by the Company or any of its subsidiaries would not
materially adversely affect the condition (financial or otherwise), business
prospects, net
6
<PAGE> 7
worth, results of operations or cash flows of the Company and its subsidiaries,
except as described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).
(r) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
they are engaged. Neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for, and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth, results of operations
or cash flows of the Company and its subsidiaries, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(s) Except as provided in loan agreements with the Company's
lenders, no subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(t) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities which are material to the conduct of their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth, results of operations or cash flows of the Company and
its subsidiaries, except as described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus).
(u) The Company will conduct its operations in a manner that
will not subject it to registration as an investment company under the
Investment Company Act of 1940, as amended, and this transaction will not cause
the Company to become an investment company subject to registration under such
Act.
(v) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not have a
material adverse effect on the Company and its subsidiaries) and has paid all
taxes required to be paid by it and any other assessment, fine or penalty
levied against it, to the extent that any of the foregoing is due and payable,
except for any such
7
<PAGE> 8
assessment, fine or penalty that is currently being contested in good faith or
as described in or contemplated by the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(w) Neither the Company nor any of its subsidiaries is in
material violation of any federal, state or foreign law or regulation relating
to occupational safety and health or to the storage, handling or transportation
of hazardous or toxic materials, and the Company and its subsidiaries have
received all permits, licenses or other approvals required of them under
applicable federal, state and foreign occupational safety and health and
environmental laws and regulations to conduct their respective businesses, and
the Company and each such subsidiary is in compliance with all terms and
conditions of any such permit, license or approval, except any such violation
of law or regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals which would not, singly or in the aggregate, result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth, results of operations or cash flows of the Company and
its subsidiaries, except as described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus).
(x) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.
(y) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the Company
nor any such subsidiary owns any shares of stock or any other equity securities
of any corporation or has any equity interest in any firm, partnership,
association or other entity, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(z) There is no holder of securities of the Company, who, by
reason of the filing of the Registration Statement, has the right to request
the Company to register under the Act, or to include in the Registration
Statement, securities held by such holder, except to the extent such holder has
waived such rights in writing.
(aa) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(1) transactions are executed in accordance with management's general or
specific authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (3) access to
assets is permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(bb) Except as disclosed in the Registration Statement, no
default exists, and no event has occurred which, with notice or lapse of time
or both, would constitute a default (i) in
8
<PAGE> 9
the due performance and observance of any term, covenant or condition of any
bond, debenture, indenture, note, evidence of indebtedness, mortgage, deed of
trust, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or any of their respective properties is bound or may be affected in any
material adverse respect with regard to property, business or operations of the
Company and its subsidiaries, and (ii) which has or would have a material
adverse effect on the business, operations or property of the Company or its
subsidiaries, taken as a whole. Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation or bylaws.
(cc) None of the Company, its subsidiaries or any employee of
the Company or its subsidiaries has made any payment of funds of the Company or
its subsidiaries prohibited by law and no funds of the Company or its
subsidiaries have been set aside to be used for any payment prohibited by law.
(dd) Except as described in the Prospectus, the Company has
obtained title insurance policies on all of the Properties and each such title
insurance policy is in full force and effect.
(ee) The mortgages and deeds of trust encumbering the
properties and assets described in the Prospectus are not convertible and the
Company does not hold a participating interest therein and such mortgages and
deeds of trust are not cross-defaulted or cross-collateralized to any property
which is not owned by the Company.
(ff) The Company has been qualified as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended (the
"Code"), since the year ended December 31, 1994, has elected to be taxed as a
REIT under the Code for the taxable year ended December 31, 1997, and expects
to continue to be organized and to operate in a manner so as to qualify as a
REIT in the taxable year ending December 31, 1998 and succeeding taxable years.
(gg) The Company will be treated as having met the requirements
for qualification and taxation as a REIT for taxable years ending December 31,
1995, 1996 and 1997 and, assuming compliance with the actions described in the
"Federal Income Tax Considerations" section of the Prospectus, its proposed
method of operation described in the Prospectus will enable it to continue to
meet the requirements for qualification and taxation as a REIT under the Code.
3. Purchase, Sale and Delivery of the Shares
(a) On the basis of the representations, warranties,
agreements and covenants contained in this Agreement and subject to the terms
and conditions set forth in this Agreement, the Company agrees to sell to each
of the Underwriters, and each of the Underwriters, individually and not
jointly, agrees to purchase from the Company, at a purchase price of $_____ per
Share, the respective amount of Firm Shares set forth opposite the name of such
Underwriter in Schedule 3 to this Agreement. One or more certificates in
definitive form for the Firm Shares
9
<PAGE> 10
that the several Underwriters have agreed to purchase under this Agreement, and
registered in such name or names as you request upon notice to the Company at
least 48 hours prior to the Firm Closing Date, shall be delivered by or on
behalf of the Company to you on the Firm Closing Date for the respective
accounts of the several Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by certified or official bank
checks drawn upon or by a New York Clearing House bank and payable in next-day
funds to the order of the Company or at the option of the Underwriters, by wire
transfer to the account of the Company in same-day funds. Such delivery of,
and payment for, the Firm Shares shall be made at the offices of Honigman
Miller Schwartz and Cohn, 2290 First National Building, Detroit, Michigan
48226, at 10:00 A.M., Detroit time, on _____________, 1998, or at such other
place, time or date as you and the Company may agree upon or as you may
determine pursuant to Section 9 of this Agreement, such time and date of
delivery against payment being referred to in this Agreement as the "Firm
Closing Date". The Company will make such certificate or certificates for the
Firm Shares available to you for inspection at the offices in Detroit, Michigan
of the Company's transfer agent or registrar or of Roney & Co., L.L.C., at
least 24 hours prior to the Firm Closing Date.
(b) For the sole purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Shares as contemplated by
the Prospectus, the Company hereby grants to the Underwriters an option to
purchase, individually and not jointly, the Option Shares. The purchase price
to be paid for any Option Shares shall be the same as the price for the Firm
Shares set forth above in paragraph (a) of this Section 3. The option granted
hereby may be exercised as to all or any part of the Option Shares from time to
time within 30 days after the date of the Prospectus (or, if such 30th day
shall be a Saturday or a Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading). The
Underwriters shall not be under any obligation to purchase any of the Option
Shares prior to the exercise of such option. The Underwriters may from time to
time exercise the option granted hereby by giving notice in writing or by
telephone (confirmed in writing) to the Company setting forth the aggregate
number of shares of Option Shares as to which the Underwriters are then
exercising the option and the date and time for delivery of and payment for
such Option Shares. Any such date of delivery shall be determined by the
Underwriters but shall not be earlier than two business days nor later than
seven business days after such exercise of the option and, in any event, shall
not be earlier than the Firm Closing Date. The time and date set forth in such
notice, or such other time, date or both as the Underwriters and the Company
may agree upon or as the Underwriters may determine pursuant to Section 9 of
this Agreement, are called the "Option Closing Date" in this Agreement with
respect to such Option Shares. Upon exercise of the option as provided in this
Agreement, the Company shall become obligated to sell to each of the
Underwriters, and, on the basis of the representations and warranties contained
in this Agreement and subject to the terms and conditions set forth in this
Agreement, each of the Underwriters, individually and not jointly, shall become
obligated to purchase from the Company, the same percentage of the total number
of Option Shares as to which the Underwriters are then exercising the option as
such Underwriter is obligated to purchase of the aggregate number of Firm
Shares (subject to such adjustments to provide for purchases of integral
amounts of Shares as you may determine). If the option is exercised as to
10
<PAGE> 11
all or any portion of the Option Shares, one or more certificates in definitive
form for such Option Shares, and payment therefor, shall be delivered on the
related Option Closing Date in the manner, and upon the terms and conditions,
set forth in paragraph (a) of this Section 3, except that reference therein to
the Firm Shares and the Firm Closing Date shall be deemed, for purposes of this
paragraph (b), to refer to such Option Shares and Option Closing Date,
respectively.
(c) You have advised the Company that each Underwriter has
authorized you to accept delivery of its Firm Shares (and Option Shares, if the
option is exercised), to make payment and to give receipt therefor.
4. Offering by the Underwriters. Upon your authorization of the
release of the Firm Shares, the Underwriters propose to offer their respective
portions of the Firm Shares for sale to the public upon the terms set forth in
the Prospectus.
5. Covenants of the Company. The Company covenants and agrees with
each of the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
possible. If required, the Company will file the Prospectus and any amendment
or supplement thereto with the Commission in the manner and within the time
period required by Rule 424(b) under the Act. During any time when a
prospectus relating to the Shares is required to be delivered under the Act (or
until the Firm Closing Date and any Option Closing Date, if later), the Company
(1) will comply with all requirements imposed upon it by the Act, the Exchange
Act and the respective rules and regulations of the Commission thereunder to
the extent necessary to permit the continuance of sales of or dealings in the
Shares in accordance with the provisions of this Agreement and of the
Prospectus, as then amended or supplemented, and (2) will not file with the
Commission the Prospectus or the amendment referred to in the third sentence of
Section 2(a) of this Agreement, any amendment or supplement to such Prospectus
or any amendment to the Registration Statement of which the Underwriters shall
not previously have been advised and furnished with a copy a reasonable period
of time prior to the proposed filing or as to which filing you shall not have
given your consent. The Company will prepare and file with the Commission, in
accordance with the Act and the rules and regulations of the Commission,
promptly upon request by the Underwriters or counsel for the Underwriters, any
amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters, and will use its best efforts
to cause any such amendment to the Registration Statement to be declared
effective by the Commission as promptly as possible. The Company will advise
you, promptly after receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and will
provide evidence satisfactory to you of each such filing or effectiveness.
11
<PAGE> 12
(b) The Company will advise the Underwriters, promptly after
receiving notice or obtaining knowledge thereof, of (1) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto or any order directed at any
document incorporated by reference in the Registration Statement or the
Prospectus or any amendment or supplement thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, (2) the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, (3) the institution,
threatening or contemplation of any proceeding for any such purpose or (4) any
request made by the Commission for amending the Registration Statement, for
amending or supplementing any Preliminary Prospectus or the Prospectus or for
additional information. The Company will use its best efforts to prevent the
issuance of any such stop order and, if any such stop order is issued, to
obtain the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the registration or
qualification of the Shares for offering and sale under the securities or blue
sky laws of such jurisdictions as you may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares, provided, however, that in connection with such
qualification the Company shall not be required to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction.
(d) If, at any time prior to the later of (1) the final date
when a prospectus relating to the Shares is required to be delivered under the
Act or (2) the Firm Closing Date and any Option Closing Date, any event occurs
as a result of which the Prospectus, as then amended or supplemented, would
include any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if for any other
reason it is necessary at any time to amend or supplement the Prospectus to
comply with the Act, the Exchange Act, the respective rules or regulations of
the Commission thereunder or any other law, the Company will promptly notify
the Underwriters thereof and, subject to Section 5(a) of this Agreement, will
prepare and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide (1) to each of
the Underwriters and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Shares and each
amendment thereto (in each case including exhibits thereto), and a conformed
copy of such registration statement and each amendment thereto (in each case
without exhibits thereto) and (2) so long as a prospectus relating to the
Shares is required to be delivered under the Act, as many copies of each
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
as the Underwriters, counsel for the Underwriters or any dealer may reasonably
request.
(f) The Company, as soon as practicable and in any event not
later than 16 months after the effective date of the Registration Statement,
will make generally available to its
12
<PAGE> 13
security holders and to the Underwriters a consolidated earnings statement of
the Company and its subsidiaries that satisfies the provisions of Section 11(a)
of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of
the Shares sold by the Company as set forth under "Use of Proceeds" in the
Prospectus.
(h) The Company will not, directly or indirectly, and will
cause its directors and executive officers, as shown on the attached Schedule
4, and its affiliates which are shareholders of the Company, to agree not to,
directly or indirectly, without your prior written consent, offer, sell, offer
to sell, contract to sell, grant any option to purchase or otherwise sell or
dispose of (or announce any offer, sale, offer of sale, contract of sale, grant
of any option to purchase or other sale or other disposition of) any Common
Stock or any securities convertible into, or exchangeable or exercisable for,
Common Stock for a period of 180 days after the date of this Agreement except
for (1) issuances pursuant to the Company's employee stock purchase plan or the
exercise of warrants outstanding on the date of this Agreement or pursuant to
the exercise of employee stock options outstanding on the date of this
Agreement (including, without limitation, the use by the holder of any such
warrants or options of Common Stock (whether outstanding or withheld by the
Company from the total amount issued) to pay the exercise price of such
warrants or options), or (2) the grant of employee stock options pursuant to
the Company's stock option plans in effect on the date of this Agreement,
provided that any employee stock options so granted after the date of this
Agreement are not exercisable prior to 180 days after the date of this
Agreement, or (3) issuances and sales of the Shares to the Underwriters
pursuant to this Agreement.
(i) The Company will not, directly or indirectly, (1) take any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares or (2) (A) sell, bid for, purchase, attempt to induce any person to
purchase, or pay anyone any compensation for soliciting purchases of, the
Shares or (B) pay or agree to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
6. Expenses. The Company will pay all costs, expenses, fees and
taxes incident to the performance of its obligations under this Agreement,
whether or not the transactions contemplated by this Agreement are consummated
or this Agreement is terminated pursuant to Section 11 of this Agreement,
including all costs, expenses fees and taxes incident to (1) the preparing,
printing or other production and filing of documents with respect to the
transactions, including any costs of printing the registration statement
originally filed with respect to the Shares and any amendment thereto
(including, without limitation, the Registration Statement), any Preliminary
Prospectus and the Prospectus and any amendment or supplement thereto, this
Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement, the
Underwriters' Questionnaire and Power of Attorney, any blue sky memoranda and
all other agreements, memoranda, correspondence and other documents printed and
delivered in connection with the offering of the Shares, (2) all arrangements
relating to the delivery to the Underwriters
13
<PAGE> 14
of copies of the foregoing documents, (3) the fees and disbursements of the
counsel, the accountants and any other experts or advisors retained by the
Company, (4) preparation, issuance and delivery to the Underwriters of any
certificates evidencing the Shares, including transfer agent's and registrar's
fees, (5) the registration or qualification of the Shares under state
securities and blue sky laws, including filing fees and the reasonable legal
fees and disbursements of counsel for the Underwriters relating thereto or to
the "Blue Sky" survey, (6) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Shares and any listing
fees relating to the Shares, and (7) advertising relating to the offering of
the Shares (other than as shall have been specifically approved by the
Underwriters to be paid for by the Underwriters). If the sale of the Shares
provided for in this Agreement is not consummated because any condition to the
obligations of the Underwriters set forth in Section 7 of this Agreement is not
satisfied, because this Agreement is terminated pursuant to Section 11 of this
Agreement, because of any failure, refusal or inability on the part of the
Company to perform all obligations and satisfy all conditions on its or their
part to be performed or satisfied under this Agreement (other than by reason of
a default by any of the Underwriters) or for any other reason (other than
because of the Underwriters' refusal (except for bona fide reasons related to
the Company, its officers, directors, employees or agents or market conditions)
or inability to perform), the Company will reimburse the Underwriters
individually upon demand for all out-of-pocket expenses (including counsel fees
and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Shares. The
reimbursement described in the preceding sentence will not exceed $80,000 in
the case of the documented fees and expenses of Underwriters' counsel and will
not exceed $10,000 in the case of the actual out-of-pocket expenses incurred
by the Underwriters. The Company shall not in any event be liable to any of
the Underwriters for the loss of anticipated profits from the transactions
covered by this Agreement.
7. Conditions of the Underwriters' Obligations. The several
obligations of each of the Underwriters to purchase and pay for the Firm Shares
shall be subject, in the Underwriters' sole discretion, to the accuracy of the
representations and warranties of the Company contained in this Agreement as of
the date of this Agreement and as of the Firm Closing Date, as if made on and
as of the Firm Closing Date, to the accuracy of the statements of the Company's
officers made pursuant to the provisions of this Agreement, to the performance
by the Company of its covenants and agreements under this Agreement and to the
following additional conditions:
(a) If the Registration Statement or any amendment to the
Registration Statement filed prior to the Firm Closing Date has not been
declared effective as of the time of execution of this Agreement, the
Registration Statement or such amendment shall have been declared effective not
later than 11:00 A.M., New York City time, on the date on which an amendment to
the registration statement originally filed with respect to the Shares or to
the Registration Statement, as the case may be, containing information
regarding the offering price of the Shares has been filed with the Commission,
or such later time and date as shall have been consented to by you. If
required, the Prospectus and any amendment or supplement thereto shall have
been filed with the Commission in the manner and within the time period
required by Rule 424(b) under the Act. No stop order suspending the
effectiveness of the Registration Statement
14
<PAGE> 15
or any post-effective amendment to the Registration Statement and no order
directed at any document incorporated by reference in the Registration
Statement or the Prospectus or any amendment or supplement thereto shall have
been issued and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Underwriters, shall be
contemplated by the Commission. The Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) You shall have received on the Firm Closing Date an
opinion addressed to the Underwriters (satisfactory to you and counsel for the
Underwriters), dated the Firm Closing Date, of Miro Weiner & Kramer, counsel
for the Company, to the effect that:
(1) the Company and each of its subsidiaries listed in
Schedule 1 to this Agreement (the "Subsidiaries") are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation and are duly qualified to transact business as foreign
corporations and are in good standing under the laws of all other jurisdictions
where the ownership or leasing of their respective properties or the conduct of
their respective businesses requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole;
(2) the Company and each of the Subsidiaries have
corporate power to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and the
Prospectus, and the Company has corporate power to enter into this Agreement
and to carry out all the terms and provisions of this Agreement to be carried
out by it;
(3) the issued and outstanding shares of capital stock
of each of the Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and are owned beneficially by the Company free and
clear of any adverse claim, as defined in the applicable Uniform Commercial
Code, or, to the best knowledge of such counsel, any other security interests,
liens, encumbrances, equities or claims;
(4) the authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization"; all of the issued and outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable federal and
state securities laws and were not issued in violation of any preemptive rights
or other rights to subscribe for or purchase securities; the certificates for
such outstanding capital stock are valid and in proper legal form; no holders
of the outstanding shares of capital stock of the Company are entitled as such
to any preemptive or other rights to subscribe for any of the Shares; and no
holders of securities of the Company are entitled to have such securities
registered under the Registration Statement;
15
<PAGE> 16
(5) the statements set forth under the headings
"Business and Properties" and "Legal Matters" in the Prospectus, insofar as
such statements constitute a summary of the legal matters, documents or
proceedings referred to under such headings, provide a fair summary of such
legal matters, documents and proceedings discussed under such headings;
(6) the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the Company and this
Agreement has been duly executed and delivered by the Company;
(7) after due inquiry and to the best knowledge of such
counsel, no legal or governmental proceedings are pending to which the Company
or any of the Subsidiaries is a party or to which the property of the Company
or any of the Subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and that are not described therein,
and, to the best knowledge of such counsel, no such proceedings have been
threatened against the Company or any of the Subsidiaries or with respect to
any of their respective properties; and no contract or other document is
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not described
therein or filed as required;
(8) the issuance, offering and sale of the Shares to
the Underwriters by the Company pursuant to this Agreement, the execution and
delivery of this Agreement, the compliance by the Company with the other
provisions of this Agreement and the consummation of the other transactions
contemplated by this Agreement do not (A) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained and such as may be required under
the Act and under state securities or blue sky laws, or (B) conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument, known to such counsel, to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or the charter
documents or bylaws of the Company or any of the Subsidiaries, or any statute
or any judgment, decree, order, rule, regulation or other law of any court or
other governmental authority or any arbitrator known to such counsel and
applicable to the Company or any of the Subsidiaries;
(9) the Registration Statement is effective under the
Act; any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b); and no
stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment to the Registration Statement and no order directed at
any document incorporated by reference in the Registration Statement or the
Prospectus or any amendment or supplement thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the best
knowledge of such counsel, are contemplated by the Commission;
16
<PAGE> 17
(10) the registration statement originally filed with
respect to the Shares and each amendment thereto (including, without
limitation, the Registration Statement) and the Prospectus and any supplement
or amendment thereto (in each case, including the documents incorporated by
reference therein but not including the financial statements and other
financial information contained therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the applicable
requirements of the Act, the Exchange Act and the respective rules and
regulations of the Commission thereunder;
(11) the Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses;
(12) this transaction will not cause the Company to
become an investment company subject to registration under the Investment
Company Act of 1940; and
(13) the Company has been qualified as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), since the year ended December 31, 1994, has elected to be taxed
as a REIT under the Code for the taxable year ended December 31, 1997, assuming
compliance with the actions described in the "Federal Income Tax
Considerations" section of the Prospectus, its proposed method of operation
described in the Prospectus will enable it to continue to meet the requirements
for qualification and taxation as a REIT under the Code.
Such counsel shall also state that, (y) in the course of
preparation of the Registration Statement and any amendment to the Registration
Statement and the Prospectus and any amendment or supplement thereto, such
counsel had conferences with officials of the Company and its independent
auditors, and with representatives of the Underwriters and their counsel at
which the content of the Registration Statement and any amendment to the
Registration Statement and the Prospectus and any amendment or supplement
thereto and related matters were discussed, and also had discussions with such
officials of the Company with a view toward a clear understanding on their part
of the requirements of the Act with reference to the preparation of
registration statements and prospectuses, although such counsel did not verify
independently the accuracy or completeness of the statements contained in the
Registration Statement and any amendment to the Registration Statement and the
Prospectus and any amendment or supplement thereto, and (z) based on such
counsel's examination of the Registration Statement and any amendment to the
Registration Statement and the Prospectus and any amendment or supplement
thereto and on its participation in the above-mentioned conferences, nothing
has come to its attention that gives it reason to believe that the Registration
Statement or any amendment to the Registration Statement, or the Prospectus or
any amendment or supplement thereto, at the time the Registration Statement
became effective, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus or any amendment
or supplement thereto, as of the date of such opinion, contained any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
17
<PAGE> 18
circumstances under which they were made, not misleading (except that such
counsel need not express any belief as to financial statements and notes, any
related schedules and other financial information contained in the Registration
Statement or Prospectus).
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems reasonable, on certificates
of responsible officers of the Company and public officials and, as to matters
involving the application of laws of any jurisdiction other than the State of
Michigan or the United States, to the extent satisfactory in form and scope to
counsel for the Underwriters, upon the opinions of local counsel reasonably
satisfactory to counsel for the Underwriters, and copies of such opinions shall
be delivered to the Underwriters and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in
this paragraph (b) shall include any amendment or supplement thereto at the
date of such opinion.
(c) You shall have received on the Firm Closing Date an
opinion addressed to the Underwriters, dated the Firm Closing Date, of Honigman
Miller Schwartz and Cohn, counsel for the Underwriters, with respect to the
issuance and sale of the Firm Shares, the Registration Statement and the
Prospectus, and such other related matters as the Underwriters may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters. In rendering such opinion, such counsel may rely as to all matters
involving the application of laws of any jurisdiction other than the State of
Michigan or the United States upon the opinion of Miro Weiner & Kramer referred
to in paragraph (b) above.
(d) You shall have received letters, on and as of the date of
this Agreement and on and as of the Firm Closing Date, from Deloitte & Touche
LLP, certified public accountants for the Company, in form and substance
satisfactory to the Underwriters, to the effect that:
(1) they are independent public accountants with
respect to the Company and its consolidated subsidiaries within the
meaning of the Act, the Exchange Act and the applicable rules and
regulations thereunder;
(2) in their opinion, the consolidated financial
statements and schedules of the Company and its consolidated
subsidiaries examined by them and included or incorporated by reference
in the Registration Statement and the Prospectus comply as to form in
all material respects with the applicable accounting requirements of the
Act, the Exchange Act, the related published rules and regulations
thereunder and Staff Accounting Bulletins with respect to registration
statements on Form S-2 and the Exchange Act documents and filings
incorporated by reference therein;
(3) on the basis of a reading of the December 31, 1997
audited consolidated financial statements and schedules of the Company
and its consolidated subsidiaries included or incorporated by reference
in the Registration Statement and the
18
<PAGE> 19
Prospectus, a reading of the latest interim unaudited consolidated
financial statements of the Company and its consolidated subsidiaries, a
reading of the minutes of the meetings of the shareholders, the board of
directors and any committees thereof of the Company and each of its
consolidated subsidiaries, inquiries of certain officials of the Company
and its consolidated subsidiaries who have responsibility for financial
and accounting matters, such limited review and auditing procedures and
inquiries as may be in accordance with standards for such reviews
promulgated by the American Institute of Certified Public Accountants
and other specific procedures and inquiries, nothing came to their
attention that caused them to believe that:
(A) the audited or unaudited consolidated
financial statements and schedules of the Company and its
consolidated subsidiaries included or incorporated by reference
in the Registration Statement and the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act, the Exchange Act and the related
published rules and regulations thereunder and Staff Accounting
Bulletins with respect to registration statements on Form S-2 and
the Exchange Act documents and filings incorporated by reference
therein or such audited or unaudited consolidated financial
statements are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial
statements included or incorporated by reference in the
Registration Statement and the Prospectus or such unaudited
schedules, when considered in relation to the unaudited financial
statements included or incorporated by reference in the
Prospectus, do not present fairly in all material respects the
information shown therein;
(B) at the date of the latest balance sheet read
by them and at a subsequent specific date not more than five
business days prior to the date of such letter, there were any
changes in the capital stock or long-term debt of the Company and
its consolidated subsidiaries or any decreases in net current
assets or shareholders' equity of the Company and its
consolidated subsidiaries, in each case compared with amounts
shown on the December 31, 1997 audited consolidated balance sheet
included or incorporated by reference in the Registration
Statement and the Prospectus, except for changes which the
Prospectus discloses have occurred or may occur or which are
described in the letter;
(C) at the date of the latest consolidated
balance sheet read by them and at a subsequent specific date not
more than five business days prior to the date of such letter
there were any decreases, as compared with amounts shown in the
audited consolidated balance sheet as of December 31, 1997,
included or incorporated by reference in the Prospectus, in
consolidated total assets, working capital, long-term debt or
shareholders' equity of the Company and its
19
<PAGE> 20
consolidated subsidiaries, except for decreases which the
Prospectus discloses have occurred or may occur or which are
described in such letter;
(D) for the period from December 31, 1997 to the
date of the latest consolidated income statement read by them,
and for the period from December 31, 1997 to a subsequent
specified date not more than five business days prior to the date
of such letter, there were any decreases, as compared with the
corresponding period of the preceding year in consolidated
revenues, gross profit, operating income, earnings before income
taxes or the total or per share amounts of income before
extraordinary items or of net income of the Company and its
consolidated subsidiaries, except for decreases which the
Prospectus discloses have occurred or may occur or which are
described in such letter; and
(4) on the basis of their examinations referred to in
their report contained or incorporated by reference in the Prospectus,
the limited procedures referred to in (3) above and the carrying out of
certain other specified procedures, not constituting an audit, they have
compared certain specified amounts, percentages and financial
information included in the Registration Statement and the Prospectus,
or in the Company's Annual and Quarterly Reports on Forms 10-K and 10-Q,
respectively, for the fiscal year ended December 31, 1997 and the fiscal
quarter ended March 31, 1998 incorporated by reference in the
Registration Statement and Prospectus with the underlying accounting
records of the Company and its consolidated subsidiaries and with
information derived from such records and have found them to be in
agreement, excluding any questions of legal interpretation.
(e) If the letters referred to in paragraph (d) above set
forth any such changes, decreases or increases, it shall be a further condition
to the obligations of the Underwriters that (1) such letters shall be
accompanied by a written explanation of the Company as to the significance
thereof, unless the Underwriters deem such explanation unnecessary, and (2)
such changes, decreases or increases do not, in the sole judgment of the
Underwriters, make it impractical or inadvisable to proceed with the purchase
and delivery of the Shares as contemplated by the Registration Statement.
References to the Registration Statement and the Prospectus in paragraph (d)
and this paragraph (e) with respect to the letters referred to above shall
include any amendment or supplement thereto at the date of such letter.
(f) You shall have received on the Firm Closing Date a
certificate, dated the Firm Closing Date, of the Chief Executive Officer and
the Chief Financial Officer of the Company to the effect that:
(1) the representations and warranties of the Company
in this Agreement are true and correct as if made on and as of the Firm
Closing Date; the Registration Statement, as amended as of the Firm
Closing Date, does not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Prospectus,
20
<PAGE> 21
as amended or supplemented as of the Firm Closing Date, does not include
any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and the
Company has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the
Firm Closing Date;
(2) no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto and no
order directed at any document incorporated by reference in the
Registration Statement or the Prospectus or any amendment or supplement
thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best of the Company's knowledge, are
contemplated by the Commission; and
(3) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(i) neither the Company nor any of its subsidiaries has sustained any
material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and (ii) there has not been any
material adverse change, or any development involving a prospective
material adverse change, in the condition (financial or otherwise),
management, business, net worth, cash flows or results of operations of
the Company or any of its subsidiaries, except in each case as described
in or contemplated by the Prospectus, and (iii) there has not been any
change in the capital stock or a material increase in the long-term debt
of the Company and its subsidiaries, except in each case as described in
or contemplated by the Prospectus, and (iv) the Company has not incurred
any liability or obligation, direct or contingent, which is material to
the Company and its subsidiaries taken as a whole, except in each case
as described in or contemplated by the Prospectus.
(g) On or before the Firm Closing Date, the Underwriters and
counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company.
All opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions of this Agreement
only if they are reasonably satisfactory in all material respects to the
Underwriters and counsel for the Underwriters. The Company shall furnish to
the Underwriters such conformed copies of such opinions, certificates, letters
and documents in such quantities as the Underwriters and counsel for the
Underwriters shall reasonably request.
The several obligations of each of the Underwriters to purchase
and pay for any Option Shares shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Shares, except that all
references to the Firm Shares and the Firm Closing Date shall be deemed to
refer to such Option Shares and the related Option Closing Date, respectively.
21
<PAGE> 22
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, their respective directors, officers, partners, agents and
employees and each other person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act
(collectively, "Indemnitees") against any losses, claims, damages or
liabilities, joint or several, to which such Indemnitee may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of, relate to,
or are caused by or based upon:
(1) any untrue statement or alleged untrue statement
made by the Company in this Agreement,
(2) any untrue statement or alleged untrue statement of
any material fact contained in (A) the Registration Statement or any
amendment thereto or any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or (B) any application or other
document, or any amendment or supplement thereto, executed by the
Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to qualify the Shares
under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"),
(3) any omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
any Application a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or
(4) any untrue statement or alleged untrue statement of
any material fact contained in any audio or visual materials used in
connection with the marketing of the Shares, including, without
limitation, slides, videos, films, and tape recordings, except to the
extent such materials were prepared by the Underwriters,
and will reimburse, as incurred, each Indemnitee for any legal or other
expenses reasonably incurred by such Indemnitee in connection with
investigating, defending against, or appearing as a third-party witness in
connection with, any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of, is related to, or
is caused by or based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, or any Application in reliance upon, and in conformity
with, written information furnished to the Company by any Underwriter expressly
for use therein; and provided, further, that the Company will not be liable to
any Indemnitee with respect to any such untrue statement or omission made in
any Preliminary Prospectus that is corrected in the
22
<PAGE> 23
Prospectus (or any amendment or supplement thereto) if the person asserting any
such loss, claim, damage or liability purchased Shares from such Underwriter
but was not sent or given a copy of the Prospectus (as amended or
supplemented), other than the documents incorporated by reference therein, at
or prior to the written confirmation of the sale of such Shares to such person
in any case where such delivery of the Prospectus (as amended or supplemented)
is required by the Act and where delivery of such Prospectus (as amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability, unless such failure to deliver the Prospectus (as amended
or supplemented) was a result of noncompliance by the Company with Section 5(d)
or 5(e) of this Agreement. This indemnity agreement will be in addition to any
liability which the Company may otherwise have. The Company will not, without
the prior written consent of the Underwriters, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit
or proceeding in respect of which indemnification may be sought hereunder
(whether or not any such Indemnitee is a party to such claim, action, suit or
proceeding), unless (1) such settlement, compromise or consent includes an
unconditional release of all of the Indemnitees from all liability arising out
of such claim, action, suit or proceeding and (2) the entire settlement amount
and all costs of settlement and all related costs are borne by the Company.
(b) The Company hereby expressly and irrevocably waives any
and all rights and objections which it may have against any Indemnitee in
respect of any liabilities arising out of, or relating to, this Agreement or
the offering contemplated by this Agreement, except to the extent such
liabilities are determined, by a final order of a court of competent
jurisdiction, to be the direct and primary result of the Underwriters' gross
negligence or willful misconduct. Each Underwriter, individually and not
jointly, will indemnify and hold harmless the Company, each of its directors,
each of its officers who signed the Registration Statement and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act against any losses, claims, damages or
liabilities to which the Company, any such director or officer of the Company,
or any such controlling person of the Company may become subject under the Act,
the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) are determined, by a final order of
a court of competent jurisdiction, to be the direct and primary result of (1)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or (2) the omission or the alleged omission to state therein a
material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission is determined by such court to have been made in reliance
upon, and in conformity with, written information furnished to the Company by
such Underwriter expressly for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending
against any such loss, claim, damage,
23
<PAGE> 24
liability or action. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action (including any
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 8,
notify the indemnifying party of the commencement of such action; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8 and will not relieve it from any liability under this Section 8
except to the extent the indemnifying party is actually prejudiced by the
failure to give such notice. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party; provided, however, that if the parties to any such
action (including any impleaded parties) include both the indemnified party and
the indemnifying party or any officers, directors or controlling persons of
such indemnifying party and the indemnified party shall have reasonably
concluded that there may be one or more legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnifying party shall not have the
right to direct the defense of such action on behalf of such indemnified party
or parties and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (1) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, which counsel shall be designated by you in the
case of indemnification under paragraph (a) of this Section 8, representing the
indemnified parties under such paragraph (a) who are parties to such action or
actions) or (2) the indemnifying party does not promptly retain counsel
reasonably satisfactory to the indemnified party or (3) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying
party to such indemnified party, the indemnifying party will not be liable for
the costs and expenses of any settlement of such action effected by such
indemnified party without the written consent of the indemnifying party.
(d) If the indemnity agreement provided for in the preceding
paragraphs of this Section 8 is unavailable or insufficient, for any reason, to
fully indemnify an indemnified party in respect of any losses, claims, damages
or liabilities (or actions in respect thereof), each
24
<PAGE> 25
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (1) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Shares or (2) if the
allocation provided by the foregoing clause (1) is not permitted by applicable
law, not only such relative benefits but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total proceeds from the offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth on the cover page of the
Prospectus. The relative fault of the parties shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters, the
parties' relative intents, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances. The Company and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the equitable
considerations referred to above in this paragraph (d). Notwithstanding any
other provision of this paragraph (d), no Underwriter shall be obligated to
make contributions under this paragraph (d) that in the aggregate exceed the
total public offering price of the securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of such untrue or
alleged untrue statement or omission or alleged omission, and no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations to contribute
under this paragraph (d) are individual in proportion to their respective
underwriting obligations and not joint. For purposes of this paragraph (d),
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, shall have the same rights to contribution as
the Company.
9. Default of Underwriters. If any one or more of the Underwriters
shall fail or refuse to purchase the Firm Shares which it or they have agreed
to purchase under this Agreement and the aggregate number of shares of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the total number of shares of
Firm Shares, each non-defaulting Underwriter shall be obligated severally,
25
<PAGE> 26
in the proportion which the number of shares of Firm Shares set forth opposite
its name in Schedule 3 bears to the total number of shares of Firm Shares which
all non-defaulting Underwriters have agreed to purchase, or in such other
proportion as you may specify, to purchase the Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to
purchase; provided, however, that in no event shall the number of Firm Shares
which any Underwriter has agreed to purchase pursuant to Section 3 be increased
pursuant to this Section 9 by an amount in excess of 10% of such number of Firm
Shares without the written consent of such Underwriter. If any one or more of
the Underwriters shall fail or refuse to purchase Firm Shares or Option Shares
under this Agreement and the number of shares of Firm Shares with respect to
which such default occurs is more than 10% of the total amount of Firm Shares,
and if arrangements satisfactory to you are not made within 48 hours after such
default for the purchase by other persons (who may include the non-defaulting
Underwriters) of the Shares with respect to which such default occurs, this
Agreement will terminate without liability on the part of any non-defaulting
Underwriters or the Company other than as provided in Section 10 of this
Agreement. In any such case which does not result in the termination of this
Agreement, you shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, established as provided in Section 3
of this Agreement for not more than seven business days in order that any
necessary changes may be made in the Registration Statement, the Prospectus,
the other documents and the arrangements for the purchase and delivery of the
Firm Shares or Option Shares, as the case may be. As used in this Agreement,
the term "Underwriter" includes any person substituted for an Underwriter under
this Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
10. Survival. The respective representations, warranties,
agreements, covenants, indemnities, contribution agreements and other
statements of the Company and the several Underwriters set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (1) any
investigation made by or on behalf of the Company, any of its officers or
directors, any Underwriter or any controlling person referred to in Section 8
of this Agreement and (2) delivery of and payment for the Shares. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 6 and 8 of this Agreement shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.
11. Termination.
(a) This Agreement may be terminated with respect to the Firm
Shares or any Option Shares in your sole discretion by notice to the Company
given prior to the Firm Closing Date or the related Option Closing Date,
respectively, if the Company shall have failed, refused or been unable to
perform all obligations on its part to be performed under this Agreement on or
before the Firm Closing Date or the Option Closing Date, as applicable, or if
any of the conditions in Section 7 shall not have been fulfilled when and as
required by this Agreement to be fulfilled, or if, at or prior to the Firm
Closing Date or such Option Closing Date, respectively:
26
<PAGE> 27
(1) the Company or any of its subsidiaries shall have,
in your sole judgment, sustained any material loss or interference with
their respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or any legal or governmental proceeding or there shall
have been any material adverse change, or any development involving a
prospective material adverse change (including without limitation a
change in management or control of the Company), in the condition
(financial or otherwise), management, business, net worth, cash flows or
results of operations of the Company or any of its subsidiaries, except
in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto);
(2) trading in the Common Stock shall have been
suspended by the Commission or the New York Stock Exchange or trading in
securities generally on the New York Stock Exchange shall have been
suspended or minimum or maximum prices shall have been established on
such exchange or market system;
(3) a banking moratorium shall have been declared by
Michigan, New York or United States authorities;
(4) there shall have been (A) an outbreak or escalation
of hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in the general economic, political or financial
conditions having an effect on the U.S. financial markets that, in your
sole judgment, makes it impractical or inadvisable to proceed with the
public offering or the delivery of the Shares as contemplated by the
Registration Statement, as amended as of the date of this Agreement;
(5) there shall have been enacted, published, decreed
or promulgated any federal, state or local statute, regulation, rule or
order of any court or other governmental authority which in your opinion
materially and adversely affects or will materially and adversely affect
the business or operations of the Company; or
(6) any actions shall have been taken by any federal,
state or local government or agency in respect of its monetary or fiscal
affairs which in your opinion has a material adverse effect on the
securities markets in the United States.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided
in Section 6 and Section 8 of this Agreement.
12. Information Supplied by Underwriters. The statements set forth
in the last paragraph on the front cover page and under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus (to the extent
such statements relate to the Underwriters) constitute
27
<PAGE> 28
the only information furnished by any Underwriter to the Company for the
purposes of Section 8 of this Agreement. The Underwriters confirm that such
statements (to such extent) are correct.
13. Notices. All communications under this Agreement shall be in
writing and, if sent to you or the Underwriters, shall be delivered or sent by
mail, telex or facsimile transmission and confirmed in writing to Roney & Co.,
L.L.C., One Griswold, Detroit, Michigan 48226, Attention: C. Kirk Haggarty;
and to First of Michigan Corporation, 300 River Place, Suite 4000, Detroit,
Michigan 48207, Attention: J. Michael Davis; with a copy to Honigman Miller
Schwartz and Cohn, 2290 First National Building, Detroit, Michigan 48226,
Attention: Donald J. Kunz; and if sent to the Company, shall be delivered or
sent by mail, telex or facsimile transmission and confirmed in writing to the
Company at 30200 Telegraph Road, Suite 105, Birmingham, Michigan 48025-4503,
Attention: Anthony S. Gramer; with a copy to Miro Weiner & Kramer, 500 N.
Woodward Avenue, Suite 100, Bloomfield Hills, Michigan 48304, Attention:
Kenneth H. Gold.
14. Successors. This Agreement shall inure to the benefit of and
shall be binding upon the Underwriters and the Company, and their respective
successors, assigns and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of
this Agreement, or any provisions contained in this Agreement, this Agreement
and all conditions and provisions of this Agreement being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
Section 8 of this Agreement shall also be for the benefit of the Indemnitees,
including, without limitation, any person or persons who control any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and (ii) the indemnities of the Underwriters contained in Section
8 of this Agreement shall also be for the benefit of the directors of the
Company, the officers of the Company who have signed the Registration Statement
and any person or persons who control the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act. No purchaser of Shares from
any Underwriter shall be deemed a successor because of such purchase.
15. Applicable Law. The validity and interpretation of this
Agreement, and the terms and conditions set forth in this Agreement, shall be
governed by and construed in accordance with the laws of the State of Michigan,
without giving effect to any provisions relating to conflicts of laws.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Entire Agreement. This Agreement is the parties' entire
agreement concerning its subject matter, and supersedes all prior undertakings
and agreements.
28
<PAGE> 29
If the foregoing correctly sets forth our understanding, please indicate
your acceptance of this Agreement in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and
each of the Underwriters.
Very truly yours,
MALAN REALTY INVESTORS, INC.
By:
______________________________
Anthony S. Gramer
President and Chief Executive
Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
RONEY & CO., L.L.C.
FIRST OF MICHIGAN CORPORATION
As Representatives of the Several
Underwriters Named in Schedule 3
By: RONEY & CO., L.L.C.
By: ______________________________
Name: ____________________________
Title: ___________________________
29
<PAGE> 30
SCHEDULE 1
SUBSIDIARIES
Jurisdiction of
Name Incorporation
- ---- ----------------
30
<PAGE> 31
SCHEDULE 2
SUBSIDIARY OWNERSHIP
<TABLE>
<CAPTION>
# Shares # Shares Percent
Name Authorized Outstanding Ownership
- ---- ---------- ----------- ---------
<S> <C> <C> <C>
</TABLE>
31
<PAGE> 32
SCHEDULE 3
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
</TABLE>
Roney & Co, L.L.C.
First of Michigan Corporation
Total:
32
<PAGE> 1
EXHIBIT 5
[MIRO WEINER & KRAMER LETTERHEAD]
June 1, 1998
Malan Realty Investors, Inc.
30200 Telegraph Road
Suite 105
Birmingham, Michigan 48025-4503
Re: Registration Statement on Form S-2
(the "Registration Statement")
Gentlemen:
This opinion is furnished to you (the "Company") in connection with the
filing of the Company's Registration Statement with the Securities and Exchange
Commission. Terms used in this opinion letter that are defined in the
Registration Statement and that are not otherwise defined in this opinion letter
have the meanings ascribed to them in the Registration Statement.
You have supplied us with, and we have examined in our capacity as
counsel to the Company, such documents and other information as we deem
necessary and relevant as a basis for the opinion expressed below. In all such
examinations, we have assumed the genuiness of all signatures and all original
and certified documents and the conformity to original and certified documents
of all copies submitted to us as conformed or photostatic copies. As to various
questions of fact material to such opinion, we have relied upon statements or
certificates of officers and representatives of the Company.
Based upon the foregoing, it is our opinion that the Common Stock
registered under the Registration Statement, when issued, will be duly and
validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Miro Weiner & Kramer
<PAGE> 1
EXHIBIT 8
[MIRO WEINER & KRAMER LETTERHEAD]
June 1, 1998
Malan Realty Investors, Inc.
30200 Telegraph Road
Suite 105
Birmingham, Michigan 48025-4503
Gentlemen:
Reference is made to that certain Amendment No. 1 to the Registration
Statement on Form S-2 to be filed with the Securities and Exchange Commission on
or about June 1, 1998, with respect to the offering by Malan Realty Investors,
Inc., of 1,500,000 shares of Common Stock (the "Registration Statement") and to
the Prospectus included in the Registration Statement (the "Prospectus"). In our
opinion, the discussion in the Prospectus under the caption "Federal Income Tax
Considerations," accurately summarizes in all material respects the matters
discussed. We consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus.
Very truly yours,
/s/ Miro Weiner & Kramer
<PAGE> 1
EXHIBIT 10(r)
AGREEMENT OF SALE AND PURCHASE
BETWEEN
THOSE ENTITIES LISTED ON EXHIBIT "A"
ATTACHED HERETO AND MADE A PART HEREOF,
AS SELLER,
AND
MALAN REALTY INVESTORS, INC.,
AS PURCHASER
DATED: _______________________, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Agreement of Sale and Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Elimination of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Mortgagee Consents [INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . 4
5. Method of Consummation of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6. Condition of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
8. Place and Time of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9. Right of Entry/Condition Precedent to Purchaser's Obligation to Close . . . . . . . 7
10. Documents to be Delivered at Closing . . . . . . . . . . . . . . . . . . . . . . . . 9
11. Decatur, Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12. Representations of Seller and Purchaser . . . . . . . . . . . . . . . . . . . . . . 12
13. Taxes, Prorated Items and Closing Costs . . . . . . . . . . . . . . . . . . . . . . 15
14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
15. Brokerage Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
16. Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
17. Operation of Operating Properties . . . . . . . . . . . . . . . . . . . . . . . . . 19
18. Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
19. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
20. Survival of Representations and Warranties of Seller . . . . . . . . . . . . . . . . 21
21. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
22. No Recording of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
23. Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
24. Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
25. Use of Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
26. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
27. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
28. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
29. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
30. No Presumption Regarding Drafting . . . . . . . . . . . . . . . . . . . . . . . . . 25
31. Binding Effect and Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
32. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
33. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
34. Separation of Individual Properties . . . . . . . . . . . . . . . . . . . . . . . . 25
34. 1031 Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
(i)
<PAGE> 3
SCHEDULE OF EXHIBITS
EXHIBIT "A": Entities Comprising Seller and Properties
EXHIBIT "B": Leases (defined on Page 2)
EXHIBIT "C": Violations and Condemnations (defined on Page 2)
EXHIBIT "D": Service Contracts (defined on Page 2)
EXHIBIT "E": Purchase Price for Each Property (defined on Page 3)
EXHIBIT "F": Designated Tenants (defined on Page 9)
EXHIBIT "G": Form of Estoppel Letter for Tenants (defined on Page 9)
(ii)
<PAGE> 4
AGREEMENT OF SALE AND PURCHASE
THIS AGREEMENT OF SALE AND PURCHASE (this "Agreement"), is made and
entered into as of the _______ day of _____________________, 1998, by and
between those entities listed on Exhibit "A", attached hereto and made a part
hereof, each of which entities has an office address in care of Sandor
Development Company, at 2220 N. Meridian Street, Indianapolis, IN 46208 (which
entities are hereinafter collectively referred to as "Seller"), and MALAN
REALTY INVESTORS, INC., a Michigan corporation, having an office at 30200
Telegraph Road, Suite 105, Birmingham, MI 48025-4503 (the "Purchaser"), based
upon the following underlying recitals:
WITNESSETH:
A. Seller is the owner in fee simple of thirteen (13) improved
properties of B shop retail tenants, none of which include any property
occupied by Wal-Mart (hereinafter referred to collectively as the "Properties"
and individually as a "Property"), together with all buildings and other
improvements as may exist thereon and all easements, rights and privileges, if
any, appurtenant to such Properties (which Properties and the particular owner
thereof are listed on Exhibit "A", attached hereto and made a part hereof).
The Properties shall also include any right, title and
interest of Seller in and to: (i) any land lying in the bed of any street, road
or avenue opened or proposed, in front of or adjoining each of the Properties,
to the center line thereof, and all right, title and interest of Seller in and
to any award made or to be made in lieu thereof and in and to any unpaid award
for damage to any of the Properties by reason of change of grade of any street;
and Seller will execute and deliver to the Purchaser at the Closing, or
thereafter, on demand, all proper instruments for the conveyance of such title
and the assignment and collection of any such award; (ii) trade names
(excluding the name "Sandor Development Company"), permits, licenses and
utility agreements appurtenant to any of the Properties, if any; (iii)
fixtures,
1
<PAGE> 5
equipment and other personal property attached to and appurtenant to any of the
Properties and not owned by the Tenants (hereinafter defined), if any; and (iv)
the Leases (hereinafter defined) and security deposits held thereunder.
B. The Properties are subject, among other things, to certain
leases and occupancy agreements (which leases are sometimes hereinafter
referred to collectively as the "Leases" and individually as a "Lease")
currently in effect, which Leases are identified on Exhibit "B", attached
hereto and made a part hereof.
C. To the extent that Seller has received written notice of any
violations of applicable laws affecting any of the Properties (hereinafter
referred to collectively as the "Violations") or written notice of proposed
condemnations or takings under the power of eminent domain (hereinafter
referred to collectively as the "Condemnations"), such Violations and
Condemnations are identified on Exhibit "C", attached hereto and made a part
hereof.
D. The Seller (or its managing agent) is party to certain
existing service and/or maintenance contracts which (i) are not cancelable upon
thirty (30) days notice or less; and (ii) are for an annual amount in excess of
Two Thousand Five Hundred Dollars ($2,500.00) (hereinafter referred to
collectively as the "Service Contracts") affecting certain of the Properties,
which Service Contracts are generally identified on Exhibit "D", attached
hereto and made a part hereof.
E. Seller has agreed to sell to Purchaser, and Purchaser has
agreed to purchase from Seller all the Properties upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
2
<PAGE> 6
1. AGREEMENT OF SALE AND PURCHASE.
Subject to the terms and conditions hereof, and in reliance
upon the representations and warranties of the parties hereto contained herein,
Seller will sell to Purchaser, and Purchaser will purchase from Seller,
Seller's entire interest in the Properties.
2. PURCHASE PRICE.
The total purchase price (the "Purchase Price") for the
Properties is Thirty Three Million Seven Hundred Thousand and 00/100ths Dollars
($33,700,000.00), which is allocated among the Properties in the manner set
forth on Exhibit "E", attached hereto and made part hereof.
3. ELIMINATION OF PROPERTIES.
If, for any reason, Seller is unable, with respect to any
Property, to: (a) obtain any required Designated Tenant Estoppel Letter, (as
hereinafter defined); (b) correct any material warranty or representation or
correct, to Purchaser's reasonable satisfaction, the condition of any Property
where hazardous materials exists; or (c) correct any defect in the condition of
title or the survey with respect to any Property, as hereinafter provided in
Paragraphs 6 and 7 hereof, respectively, so affected, upon written notice from
Purchaser to Seller, said property so affected shall be eliminated from this
Agreement without any further liability or obligation with respect thereto,
subject to Paragraph 34 below. However, in the event that any one of the
Properties located at (i) Decatur, Illinois; (ii) Decatur, Indiana; (iii)
Jacksonville, Illinois; (iv) Mansfield, Ohio; or (v) Owosso, Michigan are
eliminated from this Agreement by Purchaser as aforesaid, Purchaser shall have
the right to: (i) cancel and terminate this Agreement upon written notice to
Seller, in which event neither party hereto shall have any further liability or
obligation hereunder; or (ii) waive the necessity of any such material with
respect to any or all of such Properties and elect to proceed to close this
transaction and purchase any or all of such Properties so affected, at
Purchaser's sole option.
3
<PAGE> 7
In the event Purchaser cancels and terminates this Agreement pursuant to the
foregoing, Purchaser shall be entitled to the immediate return of its Deposit
hereunder, and neither Seller nor Purchaser shall have any further rights
against the other hereunder.
4. MORTGAGEE CONSENTS.
[INTENTIONALLY OMITTED.]
5. METHOD OF CONSUMMATION OF SALE.
At the closing of this transaction, Purchaser shall pay to
Seller the Purchase Price set forth on the attached Exhibit "E" for the
respective Properties being sold to Purchaser, as adjusted by any closing
adjustments provided for herein, and each party comprising Seller shall convey,
by Warranty Deed, to Purchaser the respective Properties, free and clear of all
claims, monetary liens, and/or charges, subject to such matters as are set
forth herein.
6. CONDITION OF TITLE.
As evidence of title to each Property, Seller shall obtain, at
Seller's expense, within thirty (30) days after the date hereof, a complete
commitment for a policy of title insurance (including copies of all documents
referred to thereon) (hereinafter referred to collectively as the "Title
Insurance Commitments" and individually as a "Title Insurance Commitment")
issued by Chicago Title Insurance Company (hereinafter referred to as the
"Title Company") covering each Property in an amount not less than the Purchase
Price allocable to such Property, as set forth on Exhibit "E". The Title
Insurance Commitments shall guarantee title in the condition required herein.
Purchaser shall obtain the issuance of the final Policy of Title Insurance
pursuant to the Title Insurance Commitments (with the so-called "Standard
Exceptions" deleted therefrom) at the closing and, if this transaction closes,
Seller shall be responsible for all charges relating to the Title Insurance
Commitments and the final Policies of Title Insurance issued pursuant thereto,
excepting only that Purchaser shall be responsible
4
<PAGE> 8
for the premium charged by the Title Company for any endorsements requested by
Purchaser.
If objection to the title to any Property is made by Purchaser
for the reason that the title is not in the condition required hereunder,
Seller shall have thirty (30) days from the date of written notification from
Purchaser of the particular defects claimed within which to cure such defects.
If Seller is unable to cure such defects within such period, Purchaser shall
have the option to: (a) waive the defects and proceed with the acquisition of
the affected Property in accordance with the terms hereof; or (b) cancel and
terminate this Agreement by written notice thereof as it applies to such
affected Property pursuant to the provisions of Paragraph 3 hereof, subject
to Paragraph 34 below. In the event of a cancellation and termination by
Purchaser pursuant to the foregoing, neither party shall have any further
liability or obligation hereunder as it relates to such affected Property.
In the event, however, that any of such defects are represented by liens or
encumbrances of an ascertainable amount, and Seller and Purchaser elect to
proceed to closing with regard to said Property. Purchaser shall deduct the
amount of such defect in title from the purchase price allocable to the
affected Property. In the event Seller cures such defect within the above
time period, Purchaser agrees to complete the transaction contemplated
hereunder, subject, however, to any and all other conditions herein contained.
7. SURVEY.
The exact legal description of each Property, including the
location of all buildings and other improvements, easements, rights-of-way,
flood plain areas, wetlands, restrictions, utility lines and other
encroachments, and other encumbrances on or against the Property, shall be
determined by a survey (the "Survey") prepared at the direction and expense of
Purchaser by a registered land surveyor or civil engineer, which Survey shall
be certified to Purchaser, Seller and the Title Company, and obtained by
Purchaser as soon as possible after the date hereof, but in any event prior to
the closing, as hereinafter defined. It is understood
5
<PAGE> 9
that Seller shall furnish to Purchaser, promptly after completion of execution
hereof, copies of any existing Surveys previously obtained by Seller.
The Survey shall also certify the total number of acres
contained in each Property. In the event a Survey for any such Property shall
disclose a material condition unacceptable to Purchaser, Purchaser shall have
the right to exclude the affected Property pursuant to the provisions of
Paragraph 3 hereof on written notice to Seller, subject to Paragraph 34 below.
Notwithstanding anything to the contrary contained herein, in
the event Purchaser has not received a survey for each Property prior to the
last day of the Inspection Period (as hereinafter defined) and the applicable
survey thereafter received discloses a condition which adversely affects
Seller's ability to convey title in the condition called for in this Agreement,
then Seller shall be obligated to correct such objection prior to Closing. In
the event Seller is unable to cure such defect within the thirty (30) day
period after Purchaser notifies Seller in writing of the particular defect
claimed, then Purchaser shall have the option to: (a) waive said defect and
proceed with the acquisition of the affected Property in accordance with the
terms hereof; or (b) cancel and terminate this Agreement by written notice
thereof as it applies to such affected Property pursuant to the provisions of
Paragraph 3 hereof, subject to the provisions of Paragraph 34 below.
8. PLACE AND TIME OF CLOSING.
The closing of the transactions contemplated by this Agreement
shall take place at the offices of Chicago Title Insurance Company, 101 West
Ohio St., Suite 300, Indianapolis, IN 46207.
The closing shall take place at a time and on a date
designated by Purchaser, but in any event, not earlier than ten (10) days after
the date on which Seller has advised Purchaser, in writing, that all of the
mortgagee's consents referred to in Paragraph 4 above
6
<PAGE> 10
have been obtained. In the event the closing has not taken place by May 29,
1998, then this Agreement shall terminate, and, if the failure results from
Seller failing to comply with its pre-closing obligations contained herein,
Purchaser shall be entitled to the immediate return of its Deposit. In such
event, neither party shall be further obligated hereunder.
If Seller has complied with all of its pre-closing obligations
and the closing has not taken place because of failure by Purchaser to complete
its obligations hereunder, the Title Company shall disburse the Deposit (as
hereinafter defined) to Seller as liquidated damages in full termination of any
further obligation of Purchaser hereunder.
The closing shall take place in escrow with the Title Company
as the escrow agent. Seller shall deposit all of its closing documents, as set
forth in Paragraph 10 hereof, in escrow with the Title Company. At such time
as the Title Company is prepared to insure Purchaser's interest in each of the
Properties to be transferred at the conclusion of such closing in the condition
required herein, Purchaser will immediately deposit with the Title Company, as
escrow agent, all funds necessary to consummate its acquisition of the
Properties and execute and deliver all of its closing documents as set forth in
Paragraph 10 hereof.
9. RIGHT OF ENTRY/CONDITION PRECEDENT TO PURCHASER'S OBLIGATION
TO CLOSE.
Subject to the inspection provisions set forth in the Leases,
Purchaser and its agents and/or representatives shall have the right to enter
upon the Properties and the buildings located thereon at all reasonable times
for the purposes of inspecting the same, examining all books and records of the
business conducted thereon and making such soil tests, surveys, environmental
studies or tests, feasibility studies, architectural and engineering studies,
and such other tests and investigations as Purchaser may desire for the period
beginning on the date hereof and continuing until May 8, 1998 (the "Inspection
Period"). In connection with such activities, Purchaser shall exercise due
care to see that existing
7
<PAGE> 11
occupants are not inconvenienced. All such tests shall be at Purchaser's sole
expense, and Purchaser shall restore the Property to substantially the same
condition as existed before such tests occurred, including, without limitation,
the repair of any damage caused as a result of the performance of any such
tests. Seller hereby agrees to cooperate with Purchaser in connection with the
foregoing, and to make available to Purchaser any surveys, plans, contracts,
agreements, permits, certificates, licenses, and other documents, information
and data in Seller's possession relative to the Properties and the operation
thereof. In addition, within ten (10) days after the date hereof, Seller shall
deliver to Purchaser true, correct, and complete copies of the Contracts and
all documents with the holders of the Mortgages referred to in Paragraph 4
above. On or before the last day of the Inspection Period, Purchaser shall
notify Seller in writing of its election to proceed with the consummation of
this transaction. In the event Purchaser elects to proceed and so advises
Seller, the parties shall proceed to closing. If the Purchaser elects not to
proceed or fails to make any election prior to the last day of the Inspection
Period, then this Agreement shall thereupon terminate and, except for
Purchaser's liability under this Paragraph 9A, the parties shall be released
from any further liability hereunder, except that the Deposit shall be returned
to the Purchaser by the Title Company.
Notwithstanding anything contained herein to the contrary (a) prior to
entering upon any Property and at all times prior to the expiration of this
Agreement, Purchaser shall maintain with respect to each such entry public
liability insurance in an amount not less than $1,000,000.00 with Seller named
as an additional insured, (b) Purchaser agrees to indemnify, defend and hold
Seller harmless for all liability, claims, damages, and/or expenses (including,
without limitation, reasonable attorneys' fees) incurred by Seller as a result
of Purchaser's exercise of the inspection rights granted under this Paragraph,
and (c) Purchaser shall receive Seller's prior approval before conducting any
such physical tests or studies upon the Property,
8
<PAGE> 12
which approval shall not be withheld so long as the proposed tests and/or
studies will be conducted so as not to interfere with Seller's use of the
Properties or the rights of any tenants. Purchaser's obligation under this
Paragraph shall survive the expiration or termination of this Agreement or the
closing or sale of the Property to Purchaser.
10. DOCUMENTS TO BE DELIVERED AT CLOSING.
At the closing, the following documents will be executed and
delivered:
(a) A Warranty Deed, from Seller to Buyer, covering each
Property, in recordable form;
(b) A Bill of Sale, from Seller to Purchaser transferring
all right, title and interest in and to any of the personal property
owned by Seller and located at each Property;
(c) An assignment and assumption of all Leases in form
and substance acceptable to both parties;
(d) With respect to: (i) fifty percent (50%) of the
square footage of the tenants (the "Tenants") at the Properties; and
(ii) those tenants (the "Designated Tenants") under Leases at the
Properties set forth on Exhibit "F", attached hereto and made a part
hereof, Seller shall deliver to Purchaser an estoppel letter (the
"Estoppel Letter") substantially in the form of Exhibit "G", attached
hereto and made a part hereof, completed and executed by each Tenant
in a manner appropriate for such Tenant;
(e) The mortgage letters referred to in Paragraph 4
above;
(f) An Assignment and Assumption of Contracts in a form
acceptable to both parties;
(g) Originals or certified copies of all (i) the Leases,
(ii) Contracts, (iii) documents relating to the Mortgages referred to
in Paragraph 4 above, (iv) all lease
9
<PAGE> 13
files, keys, transferable warranties and guaranties, building plans,
blue prints, surveys, drawings, and other information or material
relating to the Properties in Seller's possession and (v) books and
records regarding the income, expenses, assets, and liabilities of the
Properties for the years 1996 and 1997;
(h) A Closing Statement for the sale of each Property;
(i) Letters signed by Seller addressed to all parties to
the Leases advising such parties of the sale of the Properties and
directing such parties to make all future payment thereunder to
Purchaser;
(j) An updated Rent Roll of the Properties, certified by
Seller to be true, correct and complete in all material respects as of
the day prior to Closing;
(k) The title insurance policy described in paragraph 6
above; and
(l) A non-foreign affidavit pursuant to Section 1445 of
the Internal Revenue Code of 1986, as amended (the "Code").
Each party agrees to execute and deliver all additional
documents which may be reasonably requested by the other party in order to
effectuate the purposes of this Agreement and the consummation of the
transactions contemplated hereby (i.e., such documents as may be reasonably
required by the Title Company to clear defects in title or to amend
certificates of partnership or LLC of any party comprising Seller); provided,
however, that the foregoing shall not be construed or deemed to expand the
obligations of any party hereunder or remove any limitations on the obligations
of any party hereunder.
In addition to the foregoing, prior to Closing, Seller shall
use its best efforts to obtain an estoppel letter from each party to any
reciprocal easement or similar type agreement affecting any Property stating
that there is no default thereunder and no money owed by Seller to any other
party to any such agreement.
10
<PAGE> 14
11. DECATUR, ILLINOIS.
Notwithstanding anything to the contrary contained in this
Agreement, the parties acknowledge and agree that Seller is currently in the
process of redeveloping the Property located in Decatur, Illinois. In order to
accommodate the expansion of the adjacent WalMart store, Purchaser is
demolishing existing buildings containing approximately 24,935 square feet of
existing space and is constructing approximately 29,000 square feet of new
building area. Accordingly, the parties have agreed that the closing with
respect to such Property shall occur on November 30, 1998, unless Purchaser
elects to accelerate such closing by notice in writing to Seller.
Prior to the consummation of the sale of such Property, Seller
shall furnish to Purchaser: (i) a certificate of substantial completion with
respect to such buildings from Seller's architect; (ii) sworn statements and
waivers of lien showing that all construction of the new buildings has been
fully paid for; (iii) certificates of occupancy from the City of Decatur,
Illinois acknowledging that the buildings are approved for occupancy by
tenants; and (iv) estoppel certificates from tenants in possession of space in
such buildings consistent with the parameters set forth in Paragraph 10(d)
above. The purchase price allocated to such Property on Exhibit "E" shall be
increased by an amount which is the quotient, the numerator of which is the
increase in the net operating income for the expansion space over the current
net operating income for the current space and the denominator of which is ten
percent (10%). In determining net operating income for the purpose of the
foregoing computation, the existing net operating income shall be deemed to be
$423,185.00 and the net operating income for the new buildings shall be deemed
to be fixed minimum rents, less unrecoverable expenses (which shall include a
three percent (3%) management fee and a twelve cent (12 cents) per square foot
structural reserve). In any event, if the center is not 100% leased at closing
of the Decatur, IL property, Seller shall enter into a Master Lease of the
vacant space
11
<PAGE> 15
guaranteeing the rental allocable to that space at a rental rate of $13.00 per
square foot, triple net for a period of one (1) year subsequent to said
closing.
In connection with such reconstruction, it is understood and
agreed that Seller may attempt to negotiate a buyout of the existing lease with
Jo-Ann Fabrics so that the new space may be re-leased at market rates. In the
event Seller is successful in negotiating such buyout, Purchaser agrees to
credit to Seller at closing of this Property one-half (1/2) of the amount of
such buyout, which credit shall not exceed the sum of Thirty-Seven Thousand
Five Hundred and 00/100ths Dollars ($37,500.00). In the event of such buyout,
for purposes of the foregoing Master Lease, the new Jo-Ann Fabrics space shall
be deemed occupied with an assumed fully net rental of $6.74 per square foot.
12. REPRESENTATIONS OF SELLER AND PURCHASER.
(a) Each party comprising Seller severally represents,
warrants and covenants to Purchaser as to the respective property it owns as
follows:
(i) Provided the consents and approvals referred
to in Paragraph 4 of this Agreement are duly
obtained, neither the execution and delivery
of this Agreement by each such Seller, nor
the consummation of the transaction
contemplated hereby, nor the compliance by
each such Seller with any of the provisions
hereof will: (A) violate, conflict with or
result in a breach of any provisions of any
note, bond, mortgage, indenture, deed of
trust, lease, license, agreement or other
instrument or obligation to which any such
Seller is a party; or (B) violate any order,
writ, injunction, decree, statute, rule or
regulation applicable to Seller;
(ii) Except as set forth in this Agreement, no
consent or approval by, notice to, or
registration with, any person, entity,
regulatory body, administrative agency or
other governmental authority is required on
the part of any party comprising the Seller
in connection with the execution and delivery
of this Agreement by any such Seller or the
consummation by any such Seller of the
transactions contemplated hereby;
(iii) This Agreement is and all other documents
reflecting the transactions contemplated
herein to which any such Seller
12
<PAGE> 16
is a party (when executed) shall be legal,
valid and binding obligations of such Seller,
enforceable by Purchaser against such Seller
in accordance with their respective terms,
except as the same may be limited by
applicable bankruptcy, insolvency or similar
laws affecting the enforceability of
creditors' rights generally; and
(iv) No representation or warranty made by any
such Seller in this Agreement or in any
written statement or certificate furnished by
any such Seller to Purchaser in connection
with the transactions contemplated by this
Agreement contains or will contain any untrue
statement of a material fact or omits or will
omit to state a material fact necessary to
make the statements contained herein or
therein not false or misleading.
(b) Each party comprising Seller also represents to
Purchaser as follows:
(i) All of the material submitted to Purchaser
with respect to the Properties and all of the
books and records of each party comprising
Seller to which Purchaser has been given
access are materially true and correct;
(ii) To the extent known to Seller and not known
to Purchaser, no party comprising Seller is a
party to service and/or maintenance contracts
other than the Service Contracts, all of
which other contracts: (i) are cancelable
upon not more than thirty (30) days notice or
are for an amount less than Two Thousand Five
Hundred Dollars ($2,500.00) annually; and
(ii) were entered into in accordance with the
past business practice and standards of each
such party composing Seller;
(iii) As of the date of this Agreement, all
payments due under all Mortgages covering the
Properties (the "Properties") have been made
by each party comprising Seller, and each
party comprising Seller will continue to make
all payments due under the Mortgages prior to
the date of closing;
(iv) As of the date of this Agreement, to the
knowledge of each such party comprising
Seller, there is no material default by any
party comprising Seller under any of the
Mortgages;
(v) To the knowledge of Seller, there are no
leasing commissions due or owing in
connection with any of the existing Leases;
13
<PAGE> 17
(vi) There are no liens or encumbrances on any
interest of any party comprising Seller in
any of the Leases, except for the Mortgages
and the rights of the holders thereof;
(vii) To the knowledge of Seller, no party
comprising Seller has received from any of
the tenants under the Leases any notice of
default under the Leases;
(viii) No party comprising Seller has entered into
any agreement, oral or written, or is subject
to any judgment, order, writ, injunction,
decree, statute, rule, or regulation which
would limit or restrict its right to enter
into this Agreement and fulfill its
obligations hereunder;
(ix) From and after the date hereof, no party
comprising Seller will sell, convey, burden,
or further encumber any Property in any
manner whatsoever (whether by mortgage,
monetary lien, easement [except as disclosed
on Exhibit "C"], restriction, or otherwise)
other than in the ordinary course of business
including, but not limited to new Leases, and
Pylon Sign Agreements;
(x) This Agreement and all instruments executed
or to be executed in connection herewith are,
or when executed will be, legal, valid, and
binding instruments enforceable against each
party comprising Seller in accordance with
their respective terms and conditions;
(xi) Except as disclosed on Exhibit "C", to the
knowledge of Seller, there are no threatened
or pending material special assessment,
material condemnation, zoning, or any other
proceedings or litigation with respect to any
Property, and no party comprising Seller has
been advised, in writing, that any
governmental authority has determined or
threatened to determine that there are any
material violations or any statutes,
ordinances, or regulations relating to any
Property, and to the best of the knowledge of
any party comprising Seller, there are no
said violations;
(xii) To the knowledge of Seller, there are no
pollutants, contaminants, toxic wastes,
hazardous substances, or other such
environmental hazards at, on, or under any
Property or any parcel of land adjacent to
any Property, and no threatened or pending
proceedings involving any of the foregoing;
(xiii) To the best of the actual knowledge of each
party comprising Seller, no party comprising
Seller maintains or contributes to, nor has
it ever maintained, contributed to
14
<PAGE> 18
or been required to contribute to, any (i)
"employee pension benefit plan" as defined in
Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), (ii) "employee welfare benefit
plan" as defined in Section 3(1) of ERISA, or
(iii) "Multiemployer plan" (as defined in
Section 3(37)(A) or (D) of ERISA);
(xiv) To the best of Seller's knowledge, each party
comprising Seller (A) has duly prepared and
filed all tax reports and returns required to
be filed by it including, without limitation,
all Federal, state and local tax reports and
returns, and (B) has paid all assessments
shown to be due from each such party on such
reports and returns;
(xv) To the best of Seller's knowledge, there are
no tax liens upon any properties or assets of
any party comprising Seller; all information
contained in all income tax returns of each
party comprising Seller for all years, to and
including, the fiscal year ended December 31,
1997 is true and correct in all material
respects; and
(xvi) Each party comprising Seller does not
currently have, and since its organization,
has never had, any employees.
Notwithstanding any other provision hereof to the
contrary, no party comprising Seller shall be considered to be in breach of any
representation or warranty of a party comprising Seller if: (i) the matter
giving rise to such breach is known by Purchaser on the date hereof; or (ii) if
such matter is not known to Purchaser on the date hereof, it becomes known to
Purchaser prior to the closing and Purchaser does not exercise its right to
terminate this Agreement with respect to such affected Property or Properties.
(c) Purchaser hereby represents to Seller that this
Agreement and all instruments executed or to be executed in connection herewith
are, or will be legal, valid and binding instruments enforceable against
Purchaser in accordance with their respective terms and conditions.
13. TAXES, PRORATED ITEMS AND CLOSING COSTS.
(a) For purposes of the prorations and adjustments
described in this Paragraph 13, Purchaser shall be deemed to own the Properties
on the closing date and,
15
<PAGE> 19
accordingly, be charged with all expenses and receive all income accruing on or
with respect to the closing date.
(b) All taxes and assessments, including all unpaid
assessments and all assessments payable in installments to the extent such
installments are due on or before the closing date, which have become a lien
upon the Properties as of the date of closing or which have been confirmed by
any public authority at the date of closing and which are due and payable on or
before the closing date, shall be paid in full by Seller. Current taxes, to
the extent not reimbursed to Seller by Tenants, shall be prorated and adjusted
as of the closing date in accordance with the due date basis of the
municipality or taxing unit in which the Property is located.
(c) All fees charged by the Title Company in connection
with the holding of the Deposit in escrow, if any, shall be shared equally by
Seller and Purchaser.
(d) The state, county and city transfer taxes, if any,
that will be payable upon the transfer of title from Seller to Purchaser shall
be Seller's obligation and any revenue stamps shall be split evenly between
Purchaser and Seller.
(e) Purchaser and Seller shall be responsible for their
own attorney's fees incurred in connection with the preparation and negotiation
of this Agreement and the transaction contemplated hereby.
(f) All rent, fees, charges and other income due under
the Leases, and any and all other income, profits, or revenue accruing to
Seller or the Properties with respect to the Properties for the month, or other
applicable period, of the closing date, (the "Income"), and received by Seller
on or before the closing date, shall be prorated as of the closing date.
Accordingly, at closing Purchaser shall receive a credit equal to the amount of
all Income received by Seller with respect to the period on and after the
closing date. Any Income due and owing or accruing prior to the closing date
but not received by Seller as of the closing
16
<PAGE> 20
date shall not be prorated or adjusted, but rather such Income shall
periodically be prorated and adjusted as of the closing date by Purchaser if
and when Purchaser receives such Income. Purchaser agrees to use its good
faith efforts to collect all such Income. After closing, Seller shall not have
the right to pursue, collect or seek any Income from any of Seller's tenants.
If, however, Seller receives any such Income, Seller and Purchaser shall
promptly pro rate same (without reference to the costs of collection) in
accordance with this Agreement. In addition to the foregoing, if any Tenant at
the Properties is paying percentage rent at the time of closing or at any time
within one year thereafter, and if a portion of the sales on which such
percentage rent is based were generated prior to the closing date, then for
each such Tenant, the percentage rent paid by such Tenant shall be prorated and
adjusted when such percentage rent is received by Purchaser with Purchaser
being entitled to an amount equal to such percentage rent multiplied by a
fraction, the numerator of which is the number of days the Purchaser owned the
Property during the period in which such percentage rent is measured and the
denominator of which is 365. Notwithstanding anything to the contrary
hereinabove contained, it is understood and agreed by the parties that Seller
shall receive a credit at Closing for its prorated portion of all amounts owing
from Tenants that are not more than thirty (30) days past due. At the time
that said amounts are subsequently collected, the same shall be retained by
Purchaser.
(g) All costs and expenses of Seller or the Properties
with respect to each Property, to the extent not reimbursed by Tenants (the
"Expenses"), shall be prorated as of the closing date. To the extent the
Expenses can accurately be prorated on the closing date, such Expenses shall be
prorated at closing. To the extent such Expenses cannot accurately be prorated
on the closing date (e.g., utility charges), such Expenses shall be prorated
and adjusted by Purchaser as of the closing date when the actual bills covering
the period in which the closing date occurs are received by Purchaser. Seller
shall pay its share of such Expenses
17
<PAGE> 21
promptly upon receipt of a statement from Purchaser. Purchaser shall have the
right to offset against any Income due Seller Seller's share of such Expenses.
(h) Not later than one (1) year after the closing date,
Purchaser shall submit to Seller a final statement regarding the proration of
Income and Expenses as of the closing date, together with a check in the amount
of any sum due to Seller. In the event such final Closing Statement discloses
that money is due to Purchaser from Seller, then Seller shall pay same to
Purchaser within thirty (30) days after receipt of such final Statement.
14. INDEMNIFICATION.
From and after the closing, each party comprising Seller
hereby severally covenants to defend, indemnify and hold harmless Purchaser,
and all officers, directors, partners, shareholders, agents or employees of
Purchaser, together with their respective heirs, executors, administrators,
legal representatives, distributees, successors and assigns (collectively, the
"Purchaser Group"), against, and pay the Purchaser Group in respect of, any and
all costs, expenses, actions, claims, losses, damages or deficiencies
including, without limitation, reasonable attorney's fees and disbursements
(collectively, "Damages") incurred or suffered by the Purchaser Group which
result from (i) any liability or obligation of the respective party comprising
Seller arising before the date hereof, or (ii) subject to the terms hereof, the
breach of any representation, warranty, agreement or covenant of such Seller or
the non-compliance by such Seller with any provision of this Agreement.
15. BROKERAGE COMMISSIONS.
Seller and Purchaser each hereby represent to the other that
(other than the brokerage commission to be paid by Seller to Cohen & Co.) they
have not retained the services of any broker or any other person or entity
(except each of their respective legal counsels) in connection with this
transaction, and shall indemnify and defend the other party against the claims
of any broker claiming to have represented the first party.
18
<PAGE> 22
16. POSSESSION.
At the closing of this transaction, Seller shall deliver and
Purchaser shall accept possession of the subject Properties, subject to the
rights of all existing tenants and such other matters as are disclosed on the
Title Insurance Commitments and as otherwise approved by Purchaser.
17. OPERATION OF OPERATING PROPERTIES.
Between the date hereof and the date of the closing of this
transaction, each party composing Seller agrees to continue to operate each
Property in accordance with its past business practice and standards. In
connection with the foregoing, each party comprising Seller agrees to:
(a) To the extent of Seller's responsibility with respect
thereto under existing Leases, keep each Property and all parts thereof in good
repair and condition, including making necessary repairs and replacements and
maintaining the same services to the tenants of the Properties, all in
accordance with Seller's past practices;
(b) To the extent Seller's responsibility with respect
thereto under existing Leases, comply with all state and municipal laws,
ordinances, regulations and orders or notices of violations relating to the
Properties to the extent that Seller has received written notices of the
violation of any of the foregoing;
(c) Comply with all the terms, conditions and provisions
of the Leases, and the Service Contracts, and make all payments due and suffer
no default thereunder; and
(d) Not to enter (other than in the ordinary course of
business) into any new contract or modify any existing contract which cannot be
terminated without charge, cost, penalty, or premium on or before the closing
without the written approval of Purchaser.
In addition to the foregoing, prior to entering into any new
leases in excess of 2,000 square feet with respect to any of the Properties,
each party comprising Seller agrees
19
<PAGE> 23
to submit to Purchaser for Purchaser's approval, an outline of the general
terms and conditions upon which it desires to enter into negotiations with a
prospective new tenant. Purchaser shall be deemed to have given its approval
of such general terms and conditions if it fails to notify such party
comprising Seller, in writing, of Purchaser's disapproval thereof within five
(5) days after Purchaser's receipt of such general terms and conditions. After
Purchaser's approval of such general terms and conditions, such party
comprising Seller may commence negotiations with such prospective tenant and
shall be authorized to execute and deliver a lease with such prospective tenant
upon terms and conditions substantially similar to the general terms and
conditions approved by Purchaser. Upon the execution and delivery of any such
new lease by such party comprising Seller, the same shall automatically be
deemed to be included among the Leases, as defined herein, for all purposes
under this Agreement. From and after the date hereof, any leasing commissions
to be paid by Seller to outside brokers, Joe Farr or parties who are not
affiliated with Seller shall be pro rated as of the date of Closing.
18. RISK OF LOSS.
In the event any of the Properties are damaged or destroyed in
whole or in part by fire or other casualty prior to the date of the closing,
Seller agrees to give Purchaser written notice of such damage or destruction as
soon as possible thereafter. Purchaser shall have the right within fifteen
(15) days after its receipt of such notice as aforesaid to eliminate such
affected Property from this transaction by written notice thereof to Seller, in
which event neither party hereto shall have any further liability or obligation
with respect to such Property, subject to the provisions of Paragraph 34. In
the event Purchaser does not elect to eliminate such Property pursuant to its
right to do so as aforesaid, the affected party comprising Seller agrees to
deliver to Purchaser at closing either: (a) an assignment of all of such
party's right, title and interest in and to all applicable insurance policies
relating to such affected Property; or (b) the proceeds of such insurance
policies in the event they have been received by such
20
<PAGE> 24
party comprising Seller. In either event, any proceeds which have been
applied by such party comprising Seller to the rebuilding of any Property so
affected shall be deemed to be a credit against any amounts owing to Purchaser
pursuant to the foregoing.
19. DEFAULT.
In the event of default by Seller hereunder, Purchaser may, at
its option: (a) demand and be entitled to return of the Deposit; or (b)
exercise the remedy of specific performance, as its sole remedy.
In the event of default by Purchaser hereunder, Seller may
demand, and shall be entitled to, retain the Deposit in full termination of
this Agreement, the same to be Seller's sole remedy for any breach hereunder by
Purchaser.
20. SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF SELLER.
Purchaser hereby acknowledges and agrees that Seller and each
party comprising Seller has made no agreements with or representations or
warranties to Purchaser, except for those specifically set forth in this
Agreement. The representations and warranties of Seller and each party
comprising Seller specifically set forth in this Agreement or in any document
delivered or to be delivered pursuant hereto shall survive the closing of the
transactions contemplated hereby for a period of one (1) year after the date of
closing and shall thereafter immediately and automatically expire, except for
the representation of both parties set forth in Paragraph 15 hereof which shall
survive the closing of the transactions contemplated hereby and shall not
expire.
21. ASSIGNMENT.
This Agreement may only be assigned by Purchaser to a
corporation, partnership, or other entity which is affiliated with Purchaser so
long as Purchaser remains primarily liable hereunder. Any such assignee shall
deliver to Seller the written agreement of
21
<PAGE> 25
such assignee, in form and substance satisfactory to Seller, pursuant to which
such assignee shall agree to assume all of the obligations of Purchaser under
this Agreement.
22. NO RECORDING OF AGREEMENT.
Neither this Agreement, nor any other document which shall
assert an interest of Purchaser in any of the Properties shall be recorded in
the public records of any jurisdiction in which any of the Properties are
located. Violation of the foregoing provision by Purchaser shall, at Seller's
election, render this Agreement null and void ab initio, and shall entitle
Seller to retain the Deposit as liquidated damages hereunder, in which event
neither party shall have any further liability or obligation hereunder.
Purchaser acknowledges that Seller shall have the right to record an
affidavit(s) confirming its election to render this Agreement null and void ab
initio, which affidavit(s) shall negate and render ineffective any document
previously recorded by Purchaser and that subsequent parties shall have the
right to rely on such affidavit(s).
23. DEPOSIT.
Simultaneously with the execution hereof, Purchaser, as
evidence of its good faith, agrees to submit the sum of Two Hundred Thousand
and 00/100ths Dollars ($200,000.00) as a Deposit hereunder, which Deposit shall
be held in escrow by the Title Company. Upon completion of the Inspection
Period and a decision by Purchaser to consummate this transaction, Purchaser
shall deposit the additional sum of One Million Five Hundred Thousand Dollars
($1,500,000.00) with the Title Company, (which sum, together with the earlier
deposit, shall herein collectively be referred to as the "Deposit"). The
aforesaid Deposit shall be returned to Purchaser upon the completion of the
closing of this transaction or otherwise pursuant to the provisions hereof.
The aforesaid Deposit shall be delivered to Seller in the event of any default
by Purchaser hereunder or as otherwise provided herein. The Title Company
shall deliver the Deposit to the party entitled to same upon receipt
22
<PAGE> 26
of a written notice from both parties indicating which party is entitled to
receive such Deposit pursuant to the terms of this Agreement.
24. METHOD OF PAYMENT.
All payments from Purchaser to Seller hereunder shall be paid
in immediately available funds in the form of cash, certified check, bank
cashier's check or wire transfer of federal funds, as requested.
25. USE OF WORDS.
As used herein, the singular shall include the plural, and
vice versa, and the use of any gender shall include all genders.
26. NOTICE.
Any notice or other communication required or desired to be
given hereunder shall be deemed to have been sufficiently given for all
purposes if: (a) delivered personally to the party to whom the same is
directed; or (b) sent by registered or certified mail, postage and charges
prepaid, return receipt requested, addressed to the party to whom the same is
directed; or (c) sent by a recognized national overnight delivery service
addressed to the party to whom the same is directed, at the address of such
party as follows:
If to Seller, to:
Jay D. Stein
Sandor Development Company
2220 N. Meridian Street
Indianapolis, IN 46208-5728
with a copy sent simultaneously to:
David N. Eskenazi
Sandor Development Company
2220 N. Meridian Street
Indianapolis, IN 46208-5728
23
<PAGE> 27
If to Purchaser, to:
Malan Realty Investors, Inc.
30200 Telegraph Road
Suite 105
Birmingham, MI 48025-4503
Attn: Mr. Michael K. Kaline, Vice President
with a copy sent simultaneously to:
Laurence E. Winokur, Esq.
Miro Weiner & Kramer, P.C.
500 N. Woodward Avenue
Suite 100
Bloomfield Hills, MI 48304-0908.
Any notice which is served personally shall be deemed to be
given on the date on which the same is actually served, and any notice which is
sent by mail or by overnight delivery service shall be deemed given on the
earlier of: (y) the date on which the same is actually received; or (z) the
date two (2) days after the same is deposited in a regularly maintained
receptacle for the deposit of United States mail or delivered to the overnight
delivery service. Any party may change its address for purposes of this
Agreement by giving the other parties notice thereof in the manner hereinbefore
provided for the giving of notices.
27. GOVERNING LAW.
This Agreement shall be interpreted under and governed by the
laws of the State of Michigan.
28. ENTIRE AGREEMENT.
This Agreement may be amended or modified only by the written
agreement of all of the parties hereto and the same constitutes the entire
agreement between the parties hereto relating to the subject matter hereof and
all prior negotiations are hereby merged herein.
29. CAPTIONS.
All titles and captions contained in this Agreement and in the
Index are for reference purposes only and shall not be deemed to have any
substantive effect.
24
<PAGE> 28
30. NO PRESUMPTION REGARDING DRAFTING.
It is acknowledged that the substance and form of this
Agreement have been fully reviewed and negotiated by the parties hereto and
approved as to form by their respective counsel. It is further acknowledged
and agreed that no presumption shall exist against either party hereto by
virtue of this Agreement being considered to have been drafted by counsel for
either party thereto, the drafting of this Agreement being the joint effort of
the parties hereto and their respective counsel.
31. BINDING EFFECT AND BENEFITS.
The terms and conditions of this Agreement shall be binding
upon and shall insure to the benefit of the parties hereto and their respective
heirs, representatives, successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer on any person other than
the parties hereto, or their respective heirs, representatives, successors and
permitted assigns, any rights, remedies, obligations or liabilities.
32. TIME.
Time is of the essence with respect to this Agreement.
33. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together
shall be deemed to be one in the same instrument.
34. SEPARATION OF INDIVIDUAL PROPERTIES.
In the event Purchaser elects to eliminate one or more
Properties containing at least 20,000 or more square feet from the purchase
contemplated hereby or terminates this Agreement with regard thereto pursuant
to Paragraphs 3, 6, 7, or 18 above, Seller shall have the right to terminate
this contract in its entirety, in which event neither party shall have any
25
<PAGE> 29
future rights or obligations hereunder and the Deposit shall be returned to
Purchaser. In such event, Purchaser shall then have seven (7) days to
reinstate this Agreement and the Deposit and proceed to closing, waiving such
condition or defect with regard to said individual Property or Properties,
purchasing all Properties hereunder.
35. 1031 EXCHANGE.
Seller hereunder desires to exchange, for other property of
like kind and qualifying use within the meaning of Section 1031 of the Internal
Revenue Code of 1986, as amended and the Regulations promulgated thereunder,
fee title in the Property. Seller expressly reserves the right to assign its
rights, but not its obligations, hereunder to a Qualified Intermediary as
provided in IRC Reg 1.1031(k) - 1((g)(4) on or before the Closing Date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Sale and Purchase as of the day and year first above written.
WITNESSES:
___________________________________ BY:____________________________________
___________________________________ ITS:___________________________________
ON BEHALF OF AND AS AUTHORIZED AGENT
FOR THOSE ENTITIES LISTED ON
EXHIBIT "A", ATTACHED HERETO AND MADE
A PART HEREOF
"SELLER"
MALAN REALTY INVESTORS, INC.,
A MICHIGAN CORPORATION
___________________________________ BY: __________________________________
MICHAEL K. KALINE
___________________________________ ITS: VICE PRESIDENT
"PURCHASER"
26
<PAGE> 30
EXHIBIT "A"
ENTITIES COMPRISING SELLER AND PROPERTIES
<TABLE>
<CAPTION>
Location Owner
-------- -----
<S> <C>
Benton Harbor, Michigan Benton Harbor Realty LLC
Chanute, Kansas Chanute Realty LLC
Champaign, Illinois Champaign Realty LLC
Crawfordsville, Indiana Crawfordsville Realty LLC
Sedd Realty Company
Decatur, Illinois Sedd-J Realty Company
Decatur, Indiana Decatur Realty LLC
El Dorado, Kansas El Dorado Realty LLC
Huntington, Indiana Huntington Realty LLC
Jacksonville, Illinois Jacksonville Realty LLC
Little Falls, Minnesota Little Falls Realty LLC
Mansfield, Ohio Sedd-J Realty Company
Owosso, Michigan Sedd-J Realty Company
Sturgis, Michigan Sedd-J Realty Company
</TABLE>
27
<PAGE> 31
EXHIBIT "B"
LEASES
28
<PAGE> 32
EXHIBIT "C"
VIOLATIONS AND CONDEMNATIONS
1. With regard to Sedd Realty Company and Crawfordsville Realty
LLC (collectively the "Crawfordsville Entities"), Purchaser acknowledges and
Seller discloses that the Crawfordsville Entities disclose that they have had
meetings with certain public officials of the City of Crawfordsville, the
Indiana Department of Transportation and adjacent landowners as to the
possibility of installing a traffic signal in front of the Shopping Center, for
which some contribution would be expected of the Crawfordsville Entities or
their successor.
2. With reference to Article 12, Paragraph (b)(ix), Seller
discloses and Purchaser acknowledges that the Crawfordsville Entities has made
a verbal commitment to Ameritech for the expansion of its existing easement to
include an additional area of 80' x 30', which area is currently covered by
grass. Ameritech plans to place a 3' x 4' x 5' phone box and surround said
area with shrubs. The easement agreement is scheduled to be finalized the week
of April 30, 1998.
3. There is a proposed special assessment in Berrien Township,
Benton Harbor, Michigan for the widening of Mall Drive which affects Benton
Harbor Realty LLC. To the best of Seller's knowledge, the anticipated cost
related to the Property is an annual amount less than Seven Hundred Fifty
Dollars ($750.00) which Seller believes would pass through to tenants.
29
<PAGE> 33
EXHIBIT "D"
SERVICE CONTRACTS
30
<PAGE> 34
EXHIBIT "E"
PURCHASE PRICE FOR EACH PROPERTY
<TABLE>
<CAPTION>
Location Purchase Price
-------- --------------
<S> <C>
Benton Harbor, Michigan $1,433,000.00
Chanute, Kansas $1,237,000.00
Champaign, Illinois $1,097,000.00
Crawfordsville, Indiana $1,995,000.00
Decatur, Illinois $4,230,000.00
Decatur, Indiana $2,962,000.00
El Dorado, Kansas $1,526,000.00
Huntington, Indiana $1,155,000.00
Jacksonville, Illinois $4,856,000.00
Little Falls, Minnesota $ 957,000.00
Mansfield, Ohio $5,745,000.00
Owosso, Michigan $5,287,000.00
Sturgis, Michigan $1,220,000.00
</TABLE>
31
<PAGE> 35
EXHIBIT "F"
DESIGNATED TENANTS
Maurices
Fashion Bug
Dollar Tree
On Cue Records
Rentway
Famous Footwear
GNC
Toyworks
JoAnn Fabrics
Petcare
Sally Beauty Supply
Play It Again Sports
Samuel Music
32
<PAGE> 36
EXHIBIT "G"
TENANT ESTOPPEL CERTIFICATE
(To be transcribed on tenant letterhead)
____________________________, 1998
Malan Realty Investors, Inc.
30200 Telegraph Road
Suite 105
Birmingham, Michigan 48025-4503
Re: __________________________________
__________________________________
(the "Shopping Center")
Gentlemen:
The undersigned hereby certifies to you and your successors and
assigns that:
1. The undersigned is the Tenant under that certain lease,
dated __________________, 19_____, between _______________________________, as
Landlord, and the undersigned, as Tenant, covering those certain premises (the
"Premises") located in the Shopping Center, as is more particularly described
in such lease.
2. Such lease is the only lease or agreement between the
undersigned and the Landlord affecting the Premises or the development in which
the Premises are located (the "Development") and such lease has not been
assigned, modified, changed, altered or amended in any respect, except as
follows (as so assigned, modified, changed, altered or amended, the "Lease"):
___________________________________________________________.
3. The undersigned has accepted possession of and now occupies
the Premises and is open for business with the general public; the lease term
commenced on __________________________ and expires on ______________________;
and there are no renewal options.
4. All rent, common area maintenance charges, taxes and other
payments due under the Lease have been paid to and including ___________, 19__;
there has been no prepayment of rent, common area maintenance charges, taxes
and other payments; and the current minimum rent being paid under the Lease is
$_______________ per annum.
5. The Lease is in full force and effect and constitutes a
legally valid instrument, binding and enforceable against the undersigned in
accordance with its terms. As of the date
33
<PAGE> 37
_____________________________________
_______________________________, 1998
Page Two
hereof, the undersigned is entitled to no credit, offset or deduction in rent
or other charges due thereunder, including, without limitation, any recapture
of percentage rent.
6. Neither Tenant nor Landlord is in default in any manner in
the performance of any of the terms, covenants or provisions of the Lease, nor
does any event or circumstance exist which, with the giving of notice or the
passage of time, or both, would result in a default under the Lease, on the
part of Tenant or Landlord.
7. The undersigned has no right to terminate the Lease.
8. No security has been deposited with Landlord under the
Lease, except as follows: ___________________________________________________.
The undersigned agrees that this letter shall inure to the
benefit of and is being relied upon by you and your lenders, mortgagees,
successors and assigns.
Very truly yours,
________________________________________
a_______________________________________
By:_____________________________________
Its:____________________________________
"Tenant"
34
<PAGE> 1
EXHIBIT 10(S)
LOAN AGREEMENT
Dated as of May 29, 1998
Between
MALAN MIDWEST, L.L.C.
as Borrower
AND
BLOOMFIELD ACCEPTANCE COMPANY, L.L.C.,
as Lender
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION........................................................1
A. Definitions...............................................................................1
2. GENERAL TERMS..................................................................................11
A. Loan and Disbursement to Borrower.........................................................11
B. Security..................................................................................11
C. Use of Proceeds...........................................................................11
D Repayment.................................................................................11
E. Mandatory Prepayments.....................................................................12
F. Voluntary Defeasance of the Loan..........................................................13
G. Release of Properties.....................................................................14
H. Successor Borrower........................................................................15
I. Release on Payment in Full................................................................15
3. INTEREST.......................................................................................15
A. Default Rate; Post-Maturity Interest......................................................15
B. Controlling Agreement.....................................................................16
4. PAYMENTS AND COMPUTATIONS......................................................................16
A. Making of Payments by EFT.................................................................16
B. Computations..............................................................................16
C. Late Payment Charge.......................................................................16
D. Annual Budgets............................................................................16
E. Hyperamortization After Optional Prepayment Date..........................................18
F. Payments Received in the Deposit Account..................................................19
5. CONDITIONS PRECEDENT...........................................................................19
A. Conditions Precedent to Closing...........................................................19
6. REPRESENTATIONS AND WARRANTIES.................................................................21
A. Organization..............................................................................21
B. Enforceability............................................................................22
C. Proceedings...............................................................................22
D. Business Purpose..........................................................................22
E. No Conflicts..............................................................................22
F. Litigation/Bankruptcy.....................................................................22
G. Agreements................................................................................22
H. No Plan Assets............................................................................22
I. Financial Information.....................................................................23
J. Filing and Recording Taxes................................................................23
K. Compliance and the Property...............................................................23
L. Single Purpose Entity/Separateness........................................................26
M. Full and Accurate Disclosure..............................................................28
N. Survival of Representations...............................................................28
7. AFFIRMATIVE COVENANTS..........................................................................28
A. Existence; Compliance with Legal Requirements; Insurance..................................28
B. Taxes and Other Charges...................................................................29
C. Access to Premises........................................................................29
D. Litigation................................................................................29
E. Cooperate in Legal Proceedings............................................................29
F. Insurance Benefits........................................................................29
G. Notice of Default.........................................................................30
H. Further Acts and Assurances...............................................................30
I. Taxes.....................................................................................30
J. Business and Operations...................................................................30
K. Title to the Properties...................................................................30
L. Costs of Enforcement......................................................................30
M. Estoppel Certificates and Confirmations...................................................31
N. Performance by Borrower...................................................................31
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
O. Cooperation...............................................................................31
P. DSCR Achievement..........................................................................32
Q. Lock-Box Agreement........................................................................32
8. NEGATIVE COVENANTS............................................................................32
A. Liens.....................................................................................32
B. Debt Cancellation.........................................................................32
C. Zoning....................................................................................32
D. Restrictions on Transfers.................................................................32
E. No Joint Assessment.......................................................................33
F. Principal Place of Business...............................................................33
9. LEASES AND LEASING............................................................................33
A. Leasing...................................................................................33
B. Borrower' Performance as Landlord.........................................................33
C. Restrictions Upon Renewals and Leasing....................................................33
D. Security Deposits.........................................................................34
10. FINANCIAL REPORTING...........................................................................34
A. Reporting Requirements....................................................................34
B. Failure to Provide Required Records.......................................................35
C. Annual Budgets............................................................................35
D. Paper and Electronic Reporting............................................................35
11. INSURANCE.....................................................................................35
A. General Obligation........................................................................35
B. Other Coverages...........................................................................35
C. Policy Requirements.......................................................................36
12. CASUALTY, CONDEMNATION AND RESTORATION........................................................37
A. Casualty..................................................................................37
B. Condemnation..............................................................................37
C. Restoration...............................................................................38
13. ESCROWS, RESERVES AND IMPOUNDS................................................................41
A. Tax and Insurance Escrow Fund.............................................................41
B. Replacement Escrow Fund...................................................................42
C. Rollover Escrow Fund......................................................................43
D. Post-Closing Repair Escrow Fund...........................................................45
E. Closing Compliance Escrow Fund............................................................47
F. Grant of Security Interest................................................................48
G. Interest on Certain Funds.................................................................48
H. Lender's General Rights and Powers........................................................48
I. Insufficiency in the Reserved Account.....................................................50
14. EVENTS OF DEFAULT.............................................................................50
15. REMEDIES......................................................................................52
A. Lender's General Rights and Remedies......................................................52
B. Rights Exercised Separately...............................................................52
C. Severance Rights..........................................................................52
D. Remedies Cumulative.......................................................................53
16. RECOURSE......................................................................................53
A. Non-Recourse Provisions...................................................................53
B. Exceptions................................................................................53
C. Non-Waiver and Springing Recourse.........................................................53
17. MISCELLANEOUS.................................................................................54
A. Survival..................................................................................54
B. Lender's Discretion.......................................................................54
C. Governing Law.............................................................................54
D. Modification, Waiver in Writing...........................................................55
E. Delay Not a Waiver........................................................................55
F. Notices...................................................................................55
G. Trial by Jury.............................................................................56
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
H. Headings..................................................................................56
I. Severability..............................................................................56
J. Preferences...............................................................................56
K. Waiver of Notice..........................................................................56
L. Remedies of Borrower......................................................................57
M. Expenses; Indemnity.......................................................................57
N. Exhibits and Schedules Incorporated.......................................................58
O. Offsets, Counterclaims and Defenses.......................................................58
P. No Joint Venture or Partnership; No Third Party Beneficiaries.............................58
Q. Publicity.................................................................................58
R. Cross-Default; Cross-Collateralization; Waiver of Marshalling of Assets...................58
S. Waiver of Counterclaim....................................................................59
T. Conflict; Construction of Documents; Reliance.............................................59
U. Brokers and Financial Advisors............................................................59
V. Prior Agreements..........................................................................59
EXHIBITS AND SCHEDULES
----------------------
Exhibit A - DESCRIPTION OF THE PROPERTIES.........................................................60
Exhibit B - RELEASE AMOUNTS.......................................................................75
Exhibit C - MANAGEMENT AGREEMENT..................................................................76
Schedule 6F - LITIGATION/BANKRUPTCY...............................................................77
Schedule 13B - REPLACEMENT ESCROW FUND DEPOSIT REQUIREMENTS.......................................78
Schedule 13C - ROLLOVER ESCROW FUND DEPOSIT REQUIREMENTS..........................................79
Schedule 13D - POST-CLOSING REPAIR ESCROW FUND DEPOSIT REQUIREMENTS...............................80
Schedule 13E - INCOMPLETE ITEMS...................................................................81
</TABLE>
iii
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of May 29, 1998 (as amended, restated,
replaced, supplemented or otherwise modified from time-to-time, this
"AGREEMENT"), between BLOOMFIELD ACCEPTANCE COMPANY, L.L.C., having an address
at 260 East Brown Street, Suite 350, Birmingham, Michigan 48009-6229 ("LENDER")
and MALAN MIDWEST, L.L.C., a Michigan limited liability company, having an
address at 30200 Telegraph Road, Suite 105, Birmingham, Michigan 48205
("BORROWER").
All capitalized terms used in this Agreement shall have the respective
meanings set forth in Article I hereof.
WITNESSETH:
Borrower desires to obtain the Loan from Lender, and Lender is willing
to make the Loan to Borrower, subject to and in accordance with the terms of
this Agreement and the other Loan Documents.
NOW, THEREFORE, in consideration of the making of the Loan by Lender
and the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereto agree as follows:
1. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
A. DEFINITIONS. For all purposes of this Agreement, except as otherwise
expressly required or unless the context clearly indicates a contrary intent:
"ACCRUED INTEREST" has the meaning described in Paragraph 4.E(1).
"ADJUSTED RELEASE AMOUNT" means for an Individual Property the product
of the Pro-Rata Release Amount for that Individual Property and one hundred
twenty-five percent (125%).
"AFFILIATE" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by or is under common control with
that Person or is a director or officer of that Person or of an Affiliate of
that Person.
"ALTA" means American Land Title Association, or any successor thereto.
"ANCHOR PREMISES" are those improved commercial premises occupied by an
Anchor Tenant, under lease or otherwise, adjacent to the Individual Properties.
"ANCHOR TENANTS" are those retail parties (which while not tenants of
the Properties, occupy space adjacent to each of the Individual Properties and
serve as a key anchor of the overall commercial destination of which those
Individual Properties are a part , as discussed in Paragraph 13.C) that operate
under the trade name and/or style of Wal-Mart, Lowe's, Sam's and/or Country
Market.
"ANNUAL BUDGET" means the operating budget, including all planned
capital expenditures, for all the Properties prepaid by Borrower for the
applicable Fiscal Year or other period, as required under Paragraph 4.D(1).
"APPLICABLE INTEREST RATE" means (a) from the date of this Agreement
through but not including the Optional Prepayment Date, the Initial Interest
Rate, and (b) from and after the Optional Prepayment Date through and including
the date the Note is paid in full, the Revised Interest Rate.
"APPLICATION DATE" has the meaning described in Paragraph 4.E(2).
"APPRAISAL" means a current written narrative appraisal report,
addressed to Lender and its affiliates, successors, nominees and/or assigns,
rating agencies and bond investors, prepared by a qualified appraiser licensed
in the jurisdiction in which the appraised Individual Property is located,
holding the designation of "MAI" and otherwise acceptable to Lender, complying
with and conforming to the applicable requirements of USPAP and FIRREA (and
qualifying as a "Self-Contained Report of a Complete Appraisal", as those terms
are defined by the Appraisal Standards Board of the Appraisal Foundation. In
preparing an Appraisal, the appraiser must use (among other approaches to
valuation),
1
<PAGE> 6
the income approach, and in doing so must utilize both the direct
capitalization and discounted cash flow methodologies.
"APPRAISED VALUE" has the meaning described in Paragraph 2.E(2).
"APPROVED ANNUAL BUDGET" has the meaning described in Paragraph 4.D(1).
"ARCHITECT'S CERTIFICATE" has the meaning described in Paragraph
4.E(1).
"ASSIGNMENT OF AGREEMENTS" means, with respect to each Individual
Property, that certain first priority Assignment of Agreements, Permits and
Contracts dated as of the date of this Agreement, from Borrower, as assignor, to
Lender, as assignee, assigning to Lender all of Borrower's interest in and to
the applicable the Management Agreement and all other licenses, permits and
contracts necessary for the use and operation of the Individual Property as
security for the Loan, as the same may be amended, restated, replaced,
supplemented or otherwise modified from time-to-time.
"ASSIGNMENT OF LEASES" means, with respect to each Individual Property,
that certain first priority Assignment of Leases and Rents, dated as of the date
of this Agreement, from Borrower, as assignor, to Lender, as assignee, assigning
to Lender all of Borrower's interest in and to the Leases and Rents of that
Individual Property as security for the Loan, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time-to-time.
"ASSIGNMENTS OF LEASES" means, collectively all of the Assignment of
Leases encumbering each Individual Property.
"AWARD" has the meaning described in Paragraph 12.B(1).
"BEST OF BORROWER'S KNOWLEDGE" means that Borrower reasonably believes
that opinion, representation or warranty to be true, has no actual knowledge or
notice that such opinion, representation or warranty is inaccurate or
incomplete, has conducted a reasonable inquiry to assure the accuracy and
completeness of the applicable statement and, predicated on that investigation,
has no knowledge of any facts or circumstances which would render reliance
thereon unjustified without further inquiry. "REASONABLE INQUIRY" means, with
respect to the Properties and/or information relating thereto, (i) the receipt
and review of customary representations and warranties from the Seller, (ii) the
performance of prudent on-site inspections and, where applicable, reviews of
data and information supplied to Borrower upon which judgment is customarily and
prudently predicated in similar circumstances, by employees or agents of
Borrower and its Affiliates and/or third parties (e.g., environmental engineers,
consulting engineers, and etc.) who are sufficiently qualified and possess the
experience, knowledge and skill customary for and necessary to the tasks that
performed in order to make reliance on the results thereof both customary and
reasonable under the circumstances, and (iii) analysis of the foregoing by
Borrower or others on behalf of Borrower who are similarly qualified to perform
those analyses.
"BORROWER" means Malan Midwest, L.L.C., a Michigan limited liability
company, together with its successors and assigns.
"BORROWER'S REQUISITION" has the meaning described in Paragraph 4.E(4).
"BORROWING GROUP" has the meaning described in Paragraph 16.C.
"BUSINESS DAY" means any day other than a Saturday, Sunday or any other
day on which national banks in New York are not open for business.
"CAPITAL EXPENDITURES" for any period means the amount expended for
items capitalized under GAAP (including expenditures for building improvements
or major repairs, leasing commissions and tenant improvements).
"CASH EXPENSES" means, for any period, the operating expenses for the
operation of an Individual Property as set forth in an Approved Annual Budget to
the extent that those expenses are actually incurred by Borrower minus payments
into the Tax and Insurance Escrow Fund and the Replacement Escrow Fund.
"CASUALTY" has the meaning described in Paragraph 12.A.
"CASUALTY/CONDEMNATION PREPAYMENTS" has the meaning described in
Paragraph 2.E.
2
<PAGE> 7
"CASUALTY CONSULTANT" has the meaning described in Paragraph 12.C(3)
(c).
"CASUALTY RETAINAGE" has the meaning described in Paragraph 12.C(3)(d).
"CLAIMS" has the meaning described in Paragraph 17.M(2).
"CLEARING AGREEMENT" has the meaning described in Paragraph 7.Q.
"CLOSING COMPLIANCE ESCROW FUND" has the meaning described in
Paragraph 13.E.
"CLOSING DATE" means the date of the funding of the Loan.
"CODE" means the Internal Revenue Code of 1986, as amended, and as it
may be further amended from time-to-time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"COMMITMENT LETTER" means that Loan Commitment dated May 8, 1998,
issued by Lender and accepted by Borrower with respect to the Loan, as it may be
amended in writing executed by Lender and Borrower.
"CONDEMNATION" has the meaning described in Paragraph 12.B.
"CONDEMNATION PROCEEDS" has the meaning set forth in Paragraph 12.C(1)
12.B.
"CONTESTED CLAIMS" has the meaning described in Paragraph 7.B.
"CONTROL" has the meaning described in Paragraph 6.L(16).
"CPI" means the Consumer Price Index as published by the Bureau of
Labor Statistics of the U.S. Department of Labor, All Items for Urban Wage
Earners and Clerical Workers or any appropriate successor or substitute index.
"DEBT" means the outstanding principal amount set forth in, and
evidenced by, the Note together with all interest accrued and unpaid thereon and
all other sums (including the Yield Maintenance Premium) due to Lender in
respect of the Loan under the Note, this Agreement, the Mortgages or any other
Loan Document.
"DEBT SERVICE" means, with respect to any particular period of time,
scheduled principal and interest payments under the Note.
"DEBT SERVICE COVERAGE RATIO" means a ratio for the applicable period
in which:
(a) the numerator is the Net Operating Income for that period as set
forth in the statements required thereunder, without deduction for (i) actual
management fees paid in connection with the operation of the Properties, or (ii)
amounts paid to the Tax and Insurance Escrow Fund, Replacement Escrow Fund,
Rollover Escrow Fund and Post Closing Repair Escrow, less (A) management fees
equal to the greater of (1) assumed management fees of 5% of Gross Income from
Operations or (2) the actual management fees, (B) assumed Replacement Escrow
Fund contributions as provided in Schedule 13.B, or as subsequently adjusted
under the provisions of Paragraph 13.B, (C) assumed Rollover Escrow Fund
contributions consistent with Lender's standard underwriting criteria,
regardless of whether or not actual deposits are required at that time under the
provisions of Paragraph 13.C; and
(b) the denominator is the aggregate amount of principal and interest
due and payable on the Note or, in the event a Defeasance Event has occurred,
the Undefeased Note, for that period.
"DEFAULT" means the occurrence of any event hereunder or under any
other Loan Document which, but for the giving of notice or passage of time, or
both, would be an Event of Default.
"DEFAULT RATE" means, with respect to the Loan, a rate per annum equal
to the lesser of (a) the maximum rate permitted by applicable law, or (b) 5%
above the Applicable Interest Rate.
"DEFEASANCE DATE" has the meaning described in Paragraph 2.F(1).
"DEFEASANCE DEPOSIT" means an amount equal to the remaining principal
amount of the Note or the principal amount of the Defeased Note, as applicable,
the Yield Maintenance Premium, any costs and expenses incurred or to be incurred
in the purchase of U.S. Obligations necessary to meet the Scheduled
3
<PAGE> 8
Defeasance Payments and any revenue, documentary stamp or intangible taxes or
any other tax or charge due in connection with the transfer of the Note, the
creation of the Defeased Note and the Undefeased Note, if applicable, any
transfer of the Defeased Note or otherwise required to accomplish the agreements
of Paragraphs 2.D, 2.E and 2.F.
"DEFEASANCE EVENT" has the meaning described in Paragraph 2.F.
"DEFEASED NOTE" has the meaning described in Paragraph 2.F(5).
"DEPOSIT ACCOUNT" means the account or accounts established and
maintained pursuant to the Lock-Box Agreement for collecting and retaining all
the Rents from the Properties.
"DEPOSIT AGREEMENT" has the meaning described in Paragraph 7.Q hereof.
"DESIGNEE" has the meaning described in Paragraph 2.I.
"ECONOMIC OCCUPANCY" of a Replacement Tenant shall mean that: (i) the
Replacement Tenant is in actual physical possession of the premises, and open
for business therefrom; (ii) the Replacement Tenant is paying rent and all other
sums due under the corresponding Lease on a current basis without rental
concession, credit, offset, holdback or defense, or the assertion of an
unexercised right of that nature; (iii) the Replacement Tenant is occupying the
premises which have been completed in accordance with the plans and
specifications that have been finally approved by Borrower, that Replacement
Tenant and Lender, and under a final certificate of occupancy and with all other
permits and approvals necessary for the occupancy and use thereof issued in
final form; (iv) Lender shall have received an estoppel letter from that
Replacement Tenant, in form and substance satisfactory to Lender, which shall
(among other things) acknowledge each of the foregoing and the completion of all
work and the payment of all sums required from Borrower in connection with those
premises and the obligation to pay rent thereunder on a current basis without
offset or reduction for any reason; and, if those premises have been subject to
any construction or other lienable work in connection with the Replacement
Tenant's occupancy thereof, (v) Lender shall have received, at Borrower's
expense, those endorsements to Lender's policy of title insurance with respect
to the applicable Individual Property, in form and substance satisfactory to
Lender, containing those assurances acceptable to Lender and its counsel with
respect to mechanics liens, pending disbursements, completed work and all other
issues that have potential impact upon Lender's first lien position as a result
of the work performed in connection with readying those premises for Economic
Occupancy.
"ENVIRONMENTAL INDEMNITY" means that certain Environmental and
Hazardous Substance Indemnification Agreement executed by Borrower in connection
with the Loan for the benefit of Lender.
"EQUIPMENT" has the meaning described in the Mortgage with respect to
each Individual Property.
"EVENT OF DEFAULT" has the meaning described in Paragraph 14.
"EXCESS CASH FLOW" means, for any period, the sum (determined in
accordance with GAAP) of (a) Net Operating Income (limiting any deduction for
management fees to the lesser of the actual amount thereof or 5% of gross
revenue from the Individual Property), plus (b) depreciation and amortization
for that period, plus (c) disbursements from any of the Replacement Escrow Fund,
the Tax and Insurance Escrow Fund, the Post Closing Repair Escrow, or any other
escrows or reserves approved by Lender or provided for under the Loan Documents,
minus (d) actual payments of principal and interest payments (calculated at the
Applicable Interest Rate or at the Default Rate, if applicable) due and payable
in accordance with the Note during an applicable period, minus (e) actual
capital improvement expenditures in excess of payments from the Replacement
Escrow Fund and funding of reserves for working capital and extraordinary
expenses as approved by Lender in its sole discretion, and minus (f) payments
into the Replacement Escrow Fund, the Tax and Insurance Escrow Fund and other
reserves required under the Loan Documents.
"EXCESS LOAN AMOUNT" has the meaning described in Paragraph 2.E(2).
"EXTRAORDINARY EXPENSE" has the meaning described in Paragraph 4.E(6).
4
<PAGE> 9
"FINAL APPRAISAL" means an Appraisal that is accepted by Lender as to
both form and substance, as and in the manner required under Paragraph 2.E(2).
"FINAL APPRAISAL DATE" is that date defined in Paragraph 2.E(2).
"FISCAL YEAR" means each twelve month period commencing on January 1
and ending on December 31 during each year of the term of the Loan.
"GAAP" means generally accepted accounting principles in the United
States of America as of the date of the applicable financial report.
"GO-DARK EVENT" has that meaning described in Paragraph 13.C(1)(a).
"GOVERNMENTAL AUTHORITY" means any court, board, agency, commission,
office or authority of any nature whatsoever for any governmental unit (federal,
state, county, district, municipal, city or otherwise) whether now or hereafter
in existence.
"GROSS INCOME FROM OPERATIONS" means all income, computed on an accrual
basis on principles consistently applied, derived from the ownership and
operation of the Properties from whatever source, including, but not limited to,
all rent, utility charges and other reimbursed operating expenses or charges,
escalations, forfeited security deposits, service fees or charges, license fees,
parking fees, rent concessions or credits, and any business interruption
insurance proceeds but excluding sales, use and occupancy or other taxes on
receipts required to be accounted for by Borrower to any government or
governmental agency, refunds and uncollectible accounts, sales of furniture,
fixtures and equipment, proceeds of casualty insurance and condemnation awards,
and interest on credit accounts; provided, however, the proceeds of casualty
insurance and condemnation awards shall not be included in this definition
whenever this definition is used for purposes of computing Debt Service Coverage
Ratio. Gross income shall not be diminished as a result of the Mortgages or the
creation of any intervening estate or interest in the Properties or any part
thereof.
"GUARANTOR" means Malan Realty Investors, Inc., and any other Person
who now or hereafter may have executed any guarantee in favor of Lender with
respect to any aspect of payment or performance of or under the Loan and/or Loan
Documents.
"GUARANTY" means that Guaranty in favor of Lender to be executed and
delivered at Closing by Malan Realty Investors, Inc. and generally described in
Paragraph 2.B.
"HEDGE BREAKAGE COSTS" means losses costs incurred by Lender in
connection with Hedging Activities engaged in connection with the Loan,
including the hedging of interest rate fluctuations by selling U.S. Treasury
securities or other methods chosen by BAC in its sole discretion.
"HEDGING ACTIVITY" with respect to any portion or all of the Loan,
means any interest rate swap, cap or collar agreement or similar arrangement
providing for protection against fluctuations in interest rates or the exchange
of nominal interest obligations, either generally or under specific
contingencies, entered into by Lender.
"IMPROVEMENTS" has the meaning described in the related Mortgage with
respect to each Individual Property.
"INCOMPLETE ITEMS" has the meaning described in Paragraph 13.E.
"INDEMNIFIED LIABILITIES" has the meaning described in Paragraph 17.M.
"INDEMNITEES" means Lender and the Servicing Agent, and their
respective successors and assigns, respective parents, subsidiaries and
Affiliates, their respective officers, directors, shareholders, members,
managers, employees and agents, and their respective heirs, legal
representatives, successors and assigns. Each of the individual Indemnitees is
referred to an "Indemnitee".
"INDEPENDENT DIRECTOR" has the meaning described in Paragraph 6.L(16).
"INITIAL INTEREST RATE" means a rate of 7.43% per annum.
"INSOLVENCY OPINION" has the meaning described in Paragraph 6.L(18).
5
<PAGE> 10
"INSPECTING ARCHITECT" has the meaning described in Paragraph 13.D(4).
"INSURANCE PREMIUMS" has the meaning described in Paragraph 11.C
hereof.
"INSURANCE PROCEEDS" has the meaning described in Paragraph 12.C(1).
"KEY IN-LINE TENANTS" are those parties (which as a tenant of an
Individual Property) operate under the trade name and/or style of Fashion Bug,
On-Cue or Maurice's (or an affiliated party, tradename or trade style permitted
under their respective Leases or approved by Lender), as discussed in
Paragraph13.C.
"LEASE" means any lease, or, to the extent of the interest therein of
Borrower, any sublease or sub-sublease, letting, license, concession or other
agreement (whether written or oral and whether now or hereafter in effect)
pursuant to which any person is granted a possessory interest in, or right to
use or occupy all or any portion of any space in any Individual Property of
Borrower, and every modification, amendment or other agreement relating to that
lease, sublease, sub-sublease, or other agreement entered into in connection
with that lease, sublease, sub-sublease, or other agreement and every guarantee
of the performance and observance of the covenants, conditions and agreements to
be performed and observed by the other party thereto.
"LEGAL REQUIREMENTS" means, with respect to each Individual Property,
all federal, state, county, municipal and other governmental statutes, laws,
rules, orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities affecting that Individual Property or any part thereof
or the construction, use, alteration or operation thereof, or any part thereof.
whether now or hereafter enacted and in force, and all permits, licenses and
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instruments, either of record or
known to Borrower, at any time in force affecting that Individual Property or
any part thereof, including, without limitation, any which may (i) require
repairs, modifications or alterations in or to that Individual Property or any
part thereof, or (ii) in any way limit the use and enjoyment thereof.
"LENDER" means Bloomfield Acceptance Company, L.L.C., together with its
successors and assigns.
"LICENSES" has the meaning described in Paragraph 6.K(2).
"LIEN" means, with respect to each Individual Property, any mortgage,
deed of trust, lien, pledge, hypothecation, assignment, security interest, or
any other encumbrance, charge or transfer of, on or affecting the related
Individual Property or any portion thereof or Borrower, or any interest therein,
including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, the filing of any financing statement, and mechanic's,
materialmen's and other similar liens and encumbrances.
"LOAN" means the loan made by Lender to Borrower in the original
principal amount set forth in, and evidenced by, the Note executed and delivered
by Borrower and secured by the Mortgages and the other Loan Documents executed
and delivered by Borrower.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Note, the
Mortgage and Assignment of Leases encumbering each Individual Property, the
Assignment of Agreements for each Individual Property, the Environmental
Indemnity, the O&M Agreement for each Individual Property, the Manager's Consent
and Subordination of Management Agreement for each Individual Property and any
other document pertaining to the Individual Properties as well as all other
documents executed and/or delivered in connection with the Loan.
"LOAN-TO-VALUE REQUIREMENT" has the meaning described in Paragraph
2.E(2).
"LOCK-BOX AGREEMENT" has the meaning described in Paragraph 7.Q.
"MAJOR TENANTS" are those Tenants identified as such in Paragraph 13.C.
"MANAGEMENT AGREEMENT" means, with respect to any Individual Property,
that master Management Agreement in the form attached hereto as Exhibit C
entered into by and between Borrower and the Manager, dated May 28, 1998,
pursuant to which the Manager is to provide management and other services with
respect to all of the Properties, and as referred to in Paragraph 6.K(13).
6
<PAGE> 11
"MANAGEMENT FEE" means an amount equal to 5% per annum of Gross Income
from Operations for each Individual Property.
"MANAGER" means Malan Realty Investors, Inc., as referred to in
Paragraph 6.K(13).
"MANAGER'S CONSENT AND SUBORDINATION OF MANAGEMENT AGREEMENT" means the
Agreement or Agreements by that name dated as of this date between and Lender
and Manager.
"MATURITY DATE" means June 11, 2028, or that other date on which the
final payment of principal of the Note becomes due and payable as therein
provided, whether at a stated maturity, by declaration of acceleration, or
otherwise.
"MONTHLY DEBT SERVICE PAYMENT AMOUNT" has the meaning described in
Paragraph 3.
"MORTGAGE" means, with respect to each Individual Property, that
certain first priority Mortgage, Assignment of Leases and Rents and Security
Agreement, dated the date of this Agreement, executed and delivered by Borrower
as security for the Loan made to Borrower and encumbering that Individual
Property, as the same may be amended, restated, replaced, supplemented or
otherwise modified from time-to-time.
"MORTGAGES" means, collectively, each Mortgage encumbering an
Individual Property.
"NET CAPITAL EXPENDITURES" for any period means the amount by which
Capital Expenditures during that period exceeds reimbursements for those items
during that period from any reserve fund established under this Loan Agreement.
"NET OPERATING INCOME" means the amount obtained by subtracting
Operating Expenses from Gross Income from Operations.
"NET PROCEEDS" has the meaning described in Paragraph 12.C(1).
"NET PROCEEDS DEFICIENCY" has the meaning described in Paragraph
12.C(3)(f).
"NOTE" means that certain note dated as of the date of this Agreement,
made by Borrower in favor of Lender, as it may be amended, restated, replaced,
supplemented or otherwise modified from time-to-time, including any Defeased
Note and Undefeased Note that may exist from time-to-time.
"O&M AGREEMENT" means that certain Operations and Maintenance Agreement
dated the date of this Agreement between Borrower and Lender given in connection
with the Loan.
"OFFICER'S CERTIFICATE" means a certificate delivered to Lender by
Borrower that is signed by an authorized officer of the general partner or
managing member of Borrower, in that capacity and not personally.
"OPERATING EXPENSES" shall mean the total of all expenditures of
whatever kind relating to the operation, maintenance and management of the
Properties that are incurred on a regular monthly or other periodic basis,
including without limitation, utilities, ordinary repairs and maintenance,
insurance, license fees, taxes and assessments, advertising expenses, management
fees, contributions to the Replacement Escrow Fund and the Rollover Escrow Fund,
payroll and related taxes, computer processing charges, operational equipment or
other lease payments as approved by Lender, and other similar costs, but
excluding depreciation, amortization of intangible assets, debt service and
capital expenditures, all calculated on accounting principles consistently
applied.
"OPERATING OCCUPANCY" with respect to any Replacement Anchor means that
a Replacement Anchor is in physical possession of the applicable Anchor Premises
and is fully operating and open for business from those Anchor Premises,
adequately staffed and merchandised (in Lender's sole but reasonable judgment)
for those days, and those hours of operation generally approximating, the hours
of operation, during the twelve months immediately preceding the date of this
Agreement.
"OPTIONAL PREPAYMENT DATE" means June 11, 2013.
"OTHER CHARGES" means all ground rents, maintenance charges,
impositions other than Taxes, and any other charges, including, without
limitation, vault charges and license fees for the use of vaults,
7
<PAGE> 12
chutes and similar areas adjoining the Properties, now or hereafter levied or
assessed or imposed against the Properties or any part thereof.
"PERMITTED ENCUMBRANCES" means, with respect to an Individual Property,
collectively, (a) the Liens and security interests created by the Loan
Documents, (b) all Liens, encumbrances and other matters disclosed in the Title
Insurance Policies relating to that Individual Property or any part thereof, (c)
Liens, if any, for Taxes imposed by any Governmental Authority not yet due or
delinquent, and (d) those other title and survey exceptions as Lender has
approved or may approve in writing in Lender's sole discretion.
"PERMITTED USES" means the use of the Properties as retail shopping
centers, and other appurtenant and related uses approved by Lender.
"PERSON" means any individual, corporation, partnership, joint venture,
estate, trust, unincorporated association, any federal, state, county or
municipal government or any bureau, department or agency thereof and any
fiduciary acting in that capacity on behalf of any of the foregoing.
"POLICIES" has the meaning described in Paragraph 11.C.
"POST-CLOSING REPAIR ESCROW FUND" has the meaning described in
Paragraph 13.D.
"POST-CLOSING REPAIRS" has the meaning described in Paragraph 13.D.
"PREMISES" has the meaning described in the Granting Clause of the
related Mortgage with respect to each Individual Property.
"PREMIUM DEPOSIT" has the meaning described in Paragraph 13.A(1).
"PREPAYMENT WINDOW DATE" has the meaning described in Paragraph 4.D.
"PRE-SECONDARY MARKET TRANSACTION FINANCIALS" has the meaning described
in Paragraph 10.A.
"PRO-RATA RELEASE AMOUNT" means for an Individual Property the product
of (a) the quotient obtained by dividing the Release Amount for that Individual
Property by the sum of the original Release Amount for all Properties, and (b)
the outstanding principal balance of the Loan.
"PROPERTIES" means, collectively, all of the Individual Properties
which are subject to the terms of this Agreement. The term "INDIVIDUAL PROPERTY"
means Borrower's fee or leasehold interest in each parcel of real property and
the improvements thereon owned by Borrower encumbered by a Mortgage, together
with all rights pertaining to that property and those improvements, as more
particularly described in the Granting Clauses of those Mortgages and referred
to therein as the "MORTGAGED PROPERTY". The Properties are described on the
attached Exhibit A.
"POST CLOSING REPAIR ESCROW" has the meaning described in Paragraph
13.D.
"POST-CLOSING REPAIRS" has the meaning described in Paragraph 13.D.
"PURCHASE AGREEMENT" means that Agreement of Sale and Purchase between
those Sellers identified on Exhibit A thereto and Malan Realty Investors, Inc.,
dated May 6, 1998, providing for the purchase of the Properties, as modified
and/or amended (provided that any such modification or amendment has been
provided to and approved by Lender).
"QUALIFIED EXPENSES" has the meaning described in Paragraph 4.D(2).
"RATING AGENCY" means each of each of Standard & Poor's Ratings
Services, a division of McGraw-Hill Companies, Inc., Moody's Investors Services,
Inc., Duff & Phelps Credit Rating Co. and Fitch Investors Service, L.P. or any
other nationally recognized statistical rating agency which has been approved by
Lender.
"RELEASE AMOUNT" means for an Individual Property the amount set forth
on Exhibit B hereto.
"RELEASE DATE" has the meaning described in Paragraph 2.F.
8
<PAGE> 13
"REMIC", "REMIC TRUST" and "REAL ESTATE MANAGEMENT INVESTMENT CONDUIT"
shall have those meanings set forth in Paragraph 2.F(7).
"RENTS" means, with respect to each Individual Property, all rents,
rent equivalents, moneys payable as damages or in lieu of rent or rent
equivalents, royalties (including, without limitation, all oil and gas or other
mineral royalties and bonuses), income, receivables, receipts, revenues,
deposits (including, without limitation, security, utility and other deposits),
accounts, cash, issues, profits, charges for services rendered, and other
consideration of whatever form or nature received by or paid to or for the
account of or benefit of Borrower or its agents or employees from any and all
sources arising from or attributable to the Individual Property, and proceeds,
if any, from business interruption or other loss of income insurance.
"REPLACEMENT ESCROW FUND" has the meaning described in Paragraph 13.B.
"REQUIRED RECORDS" has the meaning described in Paragraph 10.B.
"REQUIRED ROLLOVER ACCOUNT BALANCE" has that meaning described in
Paragraph 13.C(2).
"REPLACEMENT ANCHOR" is a party that is acceptable to Lender in the
exercise of its reasonable discretion, that: (i) is experienced, creditworthy,
and reputable and whose tenancy will (or would not) not cause or result in a
requalification, reduction or withdrawal of any rating initially assigned or to
be assigned in a Secondary Market Transaction involving the Loan, and whose use
of the Anchor Premises does not violate any restrictive use provision in any
then existing Lease of the adjacent Individual Property; and (ii) unless waived
by Lender in the exercise of its sole discretion, is in Operating Occupancy of,
and continuously operates that Anchor Tenant's business on and from 100% of
those Anchor Premises, other than during interim periods necessary for the
restoration of those Anchor Premises after a casualty or during similar periods
when that use, operation and/or occupancy is not required under the terms of its
applicable lease. If Lender shall consent to a waiver of any of the foregoing
conditions or requirements, it may condition that consent upon Borrower's
agreement to the requirement of the continuation of the Rollover Escrow Fund
under terms and conditions acceptable to Lender and a monthly payment into the
Rollover Escrow Fund in accordance with Lender's then applicable underwriting
requirements.
"REPLACEMENT TENANT" is a tenant that is acceptable to Lender in the
exercise of its reasonable discretion, and which has executed a new lease
agreement (on Borrower's standard lease form approved by Lender, or as otherwise
agreed to by Lender) that: (i) shall be on a triple-net basis with an initial
term of not less than 5 years; (ii) shall provide for rental rates net to the
Landlord no less than that payable by the "TERMINATED TENANT" it is replacing
(on a square foot basis, after taking into account all payments to be made with
respect to both rent and occupancy costs by the Terminated Tenant or the
Landlord, as they are compared to corresponding payments and obligation by the
proposed Replacement Tenant or undertaken by Borrower under the proposed new
lease) and that are otherwise comparable to existing local market rates for the
space rented in an arms-length transaction; (iii) shall not contain any options
for renewal or expansion by the tenant at rental rates that are either below
comparable market levels or less than the rental rates paid by the Terminated
Tenant (net to the Landlord, as noted above) during its initial lease term; (iv)
in each case shall be to a tenant that is experienced, creditworthy, and
reputable and whose use of the leased premises does not violate any restrictive
use provision in any other then existing lease of that Individual Property; (v)
unless waived by Lender in the exercise of its sole but reasonable discretion,
shall require continuous operations of that tenant's business on and from 100%
of the premises leased thereunder other than during interim periods necessary
for the restoration of those premises after a casualty or during similar periods
when that use, operation and/or occupancy is not required under the terms of
that lease (a "CONTINUOUS OPERATION CLAUSE"); and (vi) shall not contain an
option to purchase, right of first refusal, right to terminate or reduce the
lease term (except in the event of destruction of all, or substantially all, of
the Property or as otherwise permitted by Lender in the exercise of its sole
discretion). A lease to a Replacement Tenant that is approved by Lender is a
"REPLACEMENT LEASE". If Lender shall consent to a waiver of any of the foregoing
conditions or requirements, it may condition that consent upon Borrower's
agreement to the requirement of the continuation of the Rollover Escrow Fund
under terms and conditions acceptable to Lender and a monthly payment into the
Rollover Escrow Fund in accordance with Lender's then applicable underwriting
requirements.
9
<PAGE> 14
"RESERVED ACCOUNTS" has the meaning described in Paragraph 13.F.
"RESTORATION" has the meaning described in Paragraph 12.A.
"REVISED INTEREST RATE" means a rate per annum equal to 500 basis
points above the Initial Interest Rate, as discussed in Paragraph 4.E(1).
"ROLLOVER ESCROW FUND" has the meaning described in Paragraph 13.C.
"SCHEDULED DEFEASANCE PAYMENTS" has the meaning described in Paragraph
2.F.
"SECONDARY MARKET TRANSACTION" means any transaction in which the
Lender (i) sells the Loan, the Note and the other Loan Documents to one or more
investors as a whole loan, (ii) participates the Loan to one or more investors,
(iii) deposits the Loan, the Mortgages, the Note and other Loan Documents with a
trust, which trust may sell certificates to investors evidencing an ownership
interest in the trust assets, or (iv) otherwise sells the Loan or interest
therein to investors, as described in Paragraph 7.O.
"SECURITIES" means rated single or multi-class securities secured in
whole or in part by or evidencing ownership in the Note and Mortgages, and sold
or to be sold in connection with a Secondary Market Transaction.
"SECURITY AGREEMENT" has the meaning described in Paragraph 2.F(6).
"SELLER(S)" are those parties identified as the "Seller" under the
Purchase Agreement.
"SERVICER" is Bloomfield Servicing Company, L.L.C., or any other
servicer or trustee appointed by Lender.
"SEVERED LOAN DOCUMENTS" has the meaning described in Paragraph 15.C.
"SPC MEMBER" has the meaning described in Paragraph 6.L(15).
"STATE" means, with respect to an Individual Property, the State or
Commonwealth in which that Individual Property or any part thereof is located.
"SUCCESSOR BORROWER" has the meaning described in Paragraph 2.I.
"SURVEY" means a survey of the Individual Property in question prepared
by a surveyor licensed in the State and satisfactory to Lender and the company
or companies issuing the Title Insurance Policies, containing a certification of
that surveyor satisfactory to Lender and meeting those criteria discussed in
Paragraph 5.A(3)(c).
"TAKING" has the meaning described in Paragraph 12.B(1).
"TAX AND INSURANCE ESCROW FUND" has the meaning described in Paragraph
13.A.
"TAXES" means all real estate and personal property taxes,
assessments, water rates or sewer rents, now or hereafter levied or assessed or
imposed against any of the Properties or part thereof.
"TERM" has the meaning described in Paragraph 11.A.
"TERMINATION EVENT" has that meaning described in Paragraph 13.C(1)(c).
"TITLE INSURANCE POLICY" means, with respect to each Individual
Property, a ALTA Lender title insurance policy in the form (acceptable to
Lender) issued with respect to that Individual Property and insuring the lien of
the Mortgage encumbering that Individual Property.
"TRANSFER" has the meaning defined in Paragraph 8.(b) of the respective
Mortgages for each Individual Property.
"TRIGGERING EVENT", with respect to the Rollover Escrow Fund under
Paragraph 13.C, means the existence of a Go-Dark Event and/or a Termination
Event with respect to an Anchor Tenant or one or more Key In-Line Tenants, as
provided in Paragraph 13.C.
"UCC" or "UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code as
in effect in the applicable State or Commonwealth in which an Individual
Property is located.
10
<PAGE> 15
"UNDEFEASED NOTE" has the meaning described in Paragraph 2.F(5) hereof.
"UNINTENTIONAL BREACH" has the meaning described in Paragraph 6.N
hereof.
"U.S. OBLIGATIONS" means direct non-callable obligations of the United
States of America.
"WORK" has the meaning described in Paragraph 13.H.
"YIELD MAINTENANCE PREMIUM" means the amount (if any) which, when added
to the remaining principal amount of the Note or the principal amount of
Defeased Note, as applicable, will be sufficient to purchase U.S.
Obligations providing the required Scheduled Defeasance Payments.
B. Principles of Construction. All references to paragraphs,
subparagraphs, schedules and exhibits are to Paragraphs, Subparagraphs,
schedules and exhibits in or to this Agreement unless otherwise specified.
Unless otherwise specified, the words "HEREOF," "HEREIN" AND "HEREUNDER" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Unless otherwise specified, all meanings attributed to defined terms in this
Agreement shall be equally applicable to both the singular and plural forms of
the terms so defined.
2. GENERAL TERMS
A. LOAN AND DISBURSEMENT TO BORROWER. Subject to and upon the terms and
conditions set forth in this Agreement, Lender will make the Loan to Borrower on
the Closing Date in the original principal amount of $18,000,000.00. The Loan
shall mature on the Maturity Date. Borrower shall accept the Loan on the Closing
Date, subject to and upon the terms and conditions set forth in this Agreement.
(1) Disbursement to Borrower. Borrower may request and receive only
one borrowing hereunder in respect of the Loan and any amount
repaid may not be re-borrowed. Borrower shall, on the Closing
Date, receive its Loan, subject to the direction given by
Borrower as to the application of Loan proceeds to pay certain
closing costs and to fund (a) the Tax and Insurance Escrow Fund,
(b) the Replacement Escrow Fund, and (c) the Post Closing Repair
Escrow, all in accordance with the provisions of this Agreement.
(2) The Note. The Loan shall be evidenced by the Note of Borrower, in
the original principal amount of the Loan. The Note shall bear
interest as provided in the Note and shall be subject to
repayment as provided in Paragraph 4. The Note shall be entitled
to the benefits of this Agreement and shall be secured by the
Mortgages, the Assignments of Leases and the other Loan
Documents.
B. SECURITY. The Loan shall be secured by the Mortgages creating a
first lien on each of the Properties, together with the Assignment of Leases and
Rents, the Guaranty of Malan Realty Investors, Inc., and the other Loan
Documents. Under the Guaranty, Malan Realty Investors, Inc. has agreed to
guarantee to Lender obligations of payment and performance (as described under
the Guaranty) with respect to both (i) Borrower's liabilities for so-called
"carve-outs" and "springing recourse" under Paragraphs 16.B and 16.C of this
Agreement, Borrower's liability to pay any Excess Loan Amount, as provided under
Paragraph 2.E(2) of this Agreement, and the payment to Lender of all Tenant
Security Deposits (this latter obligation pursuant to Lender's waiver of certain
of the provisions of Paragraph 9.D, as provided therein). As further security
for the Loan, Borrower will at Closing establish the those Reserved Accounts
required and described in Paragraph 13.
C. USE OF PROCEEDS. Borrower shall use the proceeds of the Loan
disbursed to it pursuant to Paragraph 2.A to (a) purchase the Properties as
provided under the Purchase Agreement, (b) repay and discharge any existing
loans relating to the Properties, (c) pay all Taxes, Insurance Premiums and
Other Charges with respect of the Properties, (d) fund the Reserved Accounts,
(e) pay costs and expenses incurred in connection with the Closing of the Loan,
as approved by Lender, and (f) fund any working capital requirements of the
Properties.
D. REPAYMENT. Borrower shall repay any outstanding principal
indebtedness of the Loan in full on the Maturity Date, together with interest
thereon to (but excluding) the date of repayment.
11
<PAGE> 16
(1) Late Payment Charge. If any portion of the Debt is not paid on
the date on which it is due, Mortgagor shall pay to Mortgagee
upon demand an amount equal to the lesser of five percent (5%) of
such unpaid portion of the Debt or the maximum amount permitted
by applicable law in order to defray a portion of the expenses
incurred by Mortgagee in handling and processing such delinquent
payment and to compensate Mortgagee for the loss of the use of
such delinquent payment, and such amount shall be secured by the
Mortgages.
(2) Restriction on Prepayment. Other than in connection with a
Casualty/Condemnation Prepayment (as provided in Paragraph 2.E)
or a voluntary defeasance (as provided in Paragraph 2.F), or as
permitted under Paragraph 6 of the Note, Borrower shall have no
right to prepay all or any portion of the Loan prior to the
Optional Prepayment Date. On the Optional Prepayment Date or on
any scheduled payment date thereafter, Borrower may, at its
option and upon 30 days prior written notice from Borrower to
Lender, prepay in whole or in part the Debt without payment of
the Yield Maintenance Premium or any other premium or
consideration. If prior to the Optional Prepayment Date and
following the occurrence of any Event of Default Borrower shall
tender payment of an amount sufficient to satisfy all or any
portion of the Debt, that tender by Borrower shall be deemed to
be voluntary and Borrower shall pay, in addition to the Debt, the
Yield Maintenance Premium, if any, that would be required if a
Defeasance Event had occurred. Each voluntary prepayment after
the Optional Prepayment Date shall be made on a scheduled payment
date and include all accrued and unpaid interest up to but not
including that scheduled payment date or, if not paid on a
scheduled payment date, include interest that would have accrued
on that prepayment through the next regularly scheduled payment
date.
E. MANDATORY PREPAYMENTS. The Loan is subject to mandatory prepayment
as follows, each without a Yield Maintenance Premium (provide that there shall
not exist an Event of Default at the time of such mandatory prepayment and that
mandatory prepayment is made as and in accordance with the applicable
requirements of this Agreement):
(1) The Loan is subject to mandatory prepayment in certain instances
of Casualty and Condemnation (each a "CASUALTY/CONDEMNATION
PREPAYMENT"), in the manner and to the extent set forth in
Paragraph 12.C(4). Each Casualty/Condemnation Prepayment shall be
made on a scheduled payment date and include all accrued and
unpaid interest up to but not including that scheduled payment
date or, if not paid on a scheduled payment date, include
interest that would have accrued on that prepayment through the
next regularly scheduled payment date.
(2) Borrower's shall prepay that portion of the Loan that is equal to
the Excess Loan Amount, as defined, described and determined
below.
(a) Under the procedure established in Paragraph 13.E of
the Loan Agreement (and the corresponding provisions of
Schedule 13.E), Lender has agreed to close the Loan
without having received or approved of Appraisals for the
Properties. The Appraisals to be delivered under that
Paragraph, as approved by Lender as to both form and
substance, must demonstrate a loan-to-value ratio that
does not exceed 70%, taking into consideration all
Properties (the "LOAN-TO-VALUE REQUIREMENT"). Borrower
shall provide Lender with Appraisal Reports for all of the
Individual Properties, in final form (each a "FINAL
APPRAISAL") and in sufficient time to permit Lender's full
review and comment, and if necessary each Appraiser's
response and/or revision, on or before July 2, 1998 (the
"FINAL APPRAISAL DATE"). Borrower shall pay to Lender,
within five Business Days after written demand by Lender
the excess, if any, of the Loan amount at the time of that
demand over 70% of the aggregate final fair market value
(the "APPRAISED VALUE") of all Properties taken together
and established by the Final Appraisals approved by Lender
for each Individual Property (the "EXCESS LOAN AMOUNT"),
together with Hedge Breakage Costs. In determining the
Excess Loan Amount,
12
<PAGE> 17
credit will be given for any "surplus" Loan Amount
determined with respect to any other Individual Property
(i.e., the allocated Loan amount for any Individual
Property that exceeds the product of the Loan-to-Value
Ratio times the Appraised Value for any such Individual
Property).
F. VOLUNTARY DEFEASANCE OF THE LOAN. At any time after the date (the
"RELEASE DATE") which is four (4) years from the date of this Agreement and
provided no Event of Default exists, Borrower may voluntarily defease all or any
portion of the Loan by providing Lender with U.S. Obligations that produce
payments which replicate the payment obligations of Borrower under the Note, or
that portion of the Note which Borrower wishes to defease (hereinafter, a
"DEFEASANCE EVENT"). Each Defeasance Event by Borrower shall be subject to the
satisfaction of the following conditions precedent:
(1) Borrower shall provide not less than 30 days prior written notice
to Lender specifying a regularly scheduled payment date (the
"DEFEASANCE DATE") on which the Defeasance Event is to occur. That
notice shall indicate the principal amount of the Note to be
defeased;
(2) Borrower shall pay to Lender all accrued and unpaid interest on the
principal balance of the Note to but not including the Defeasance
Date. If for any reason the Defeasance Date is not a regularly
scheduled payment date, Borrower shall also pay interest that would
have accrued on the Note through the next regularly scheduled
payment date;
(3) Borrower shall pay to Lender all other sums, not including
scheduled interest or principal payments, due under the Note, this
Agreement, the Mortgages, and the other Loan Documents:
(4) Borrower shall pay to Lender the required Defeasance Deposit for
the Defeasance Event;
(5) In the event only a portion of the Loan is the subject of the
Defeasance Event, Borrower shall prepare all necessary documents to
amend and restate the Note and issue two substitute notes, one note
having a principal balance equal to the defeased portion of the
original Note (the "DEFEASED NOTE") and the other note having a
principal balance equal to the undefeased portion of the Note (the
"UNDEFEASED NOTE"). The Defeased Note and Undefeased Note shall
have identical terms as the Note except for the principal balance.
A Defeased Note cannot be the subject of any further Defeasance
Event;
(6) Borrower shall execute and deliver a security agreement, in form
and substance satisfactory to Lender, creating a first priority
lien on the Defeasance Deposit and the U.S. Obligations purchased
with the Defeasance Deposit in accordance with this provision of
this Paragraph 2.F (the "SECURITY AGREEMENT");
(7) Borrower shall deliver an opinion of counsel for Borrower in form
satisfactory to Lender in its sole discretion stating, among other
things, that Borrower has legally and validly transferred and
assigned the U.S. Obligations and all obligations, rights and
duties under and to the Note to the Successor Borrower, that Lender
has a perfected first priority security interest in the Defeasance
Deposit and the U.S. Obligations delivered by Borrower, and that
any "REMIC TRUST" formed pursuant to a Secondary Market Transaction
will not fail to maintain its status as a "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT" (or "REMIC") within the meaning of the Code as
a result of that Defeasance Event;
(8) Evidence in writing from the applicable Rating Agencies to the
effect that such release will not result in a withdrawal,
qualification or downgrade of the respective ratings in effect
immediately prior to that Defeasance Event for the Securities
issued in connection with the Secondary Market Transaction which
are then outstanding. If required by the applicable Rating
Agencies, Borrower shall also deliver or cause to be delivered a
non-consolidation opinion with respect to the Successor Borrower in
form and substance satisfactory to Lender and the applicable Rating
Agencies;
(9) Borrower shall deliver an Officer's Certificate of Borrower
certifying that the requirements set forth in this Paragraph 2.F
have been satisfied;
13
<PAGE> 18
(10) Borrower shall deliver those other certificates, documents or
instruments as Lender may reasonably request; and
(11) Borrower shall pay all costs and expenses of Lender incurred in
connection with the Defeasance Event, including any costs and
expenses associated with a release of one or more Liens as
provided in Paragraph 2.H hereof as well as reasonable
attorneys' fees and expenses.
In connection with each Defeasance Event, Borrower appoints Lender as its agent
and attorney-in-fact for the purpose of using the Defeasance Deposit to purchase
U.S. Obligations which provide payments on or prior to, but as close as possible
to, all successive scheduled payment dates after the Defeasance Date upon which
payments are required under this Agreement and the Note (in the case of a
Defeasance Event for the entire outstanding principal balance of the Loan) or
the Defeased Note (in the case of a Defeasance Event for only a portion of the
outstanding principal balance of the Loan) including the amounts due on the
Maturity Date (the "SCHEDULED DEFEASANCE PAYMENTS"). Borrower, pursuant to the
Security Agreement or other appropriate document, shall authorize and direct
that the payments received from the U.S. Obligations may be made directly to the
Deposit Account (unless otherwise directed by Lender) and applied to satisfy the
obligations of Borrower under the Note or the Defeased Note, as applicable. Any
portion of the Defeasance Deposit in excess of the amount necessary to purchase
the U.S. Obligations required by this Paragraph 2.F and satisfy Borrower's
obligations under this Paragraph 2.F and Paragraph 2.G shall be remitted to
Borrower.
G. RELEASE OF PROPERTIES. Except as set forth in this Paragraph 2.G, or
Paragraph 2.H below, no repayment, prepayment or defeasance of all or any
portion of the Note shall cause, give rise to a right to require, or otherwise
result in, the release of any Lien of any Mortgage on any of the Properties.
(1) If Borrower has elected to defease the entire Note and the
requirements of Paragraph 2.F have been satisfied, all of the
Properties shall be released from the Liens of their respective
Mortgages and the U.S. Obligations, pledged pursuant to the
Security Agreement, shall be the sole source of collateral
securing the Note.
(2) In connection with the release of the Liens, Borrower shall
submit to Lender, not less than 30 days prior to the Defeasance
Date, a release of Lien (and related Loan Documents) for each
Individual Property for execution by Lender. That release shall
be in a form appropriate in each jurisdiction in which an
Individual Property is located and satisfactory to Lender in its
sole discretion. In addition, Borrower shall provide all other
documentation Lender reasonably requires to be delivered by
Borrower in connection with that release, together with an
Officer's Certificate of Borrower certifying that such
documentation (i) is in compliance with all Legal Requirements,
and (ii) will effect those releases in accordance with the terms
of this Agreement.
H. RELEASE OF INDIVIDUAL PROPERTIES. Borrower on one or more occasions
may obtain (i) the individual release of an Individual Property from the Lien of
the Mortgage thereon (and related Loan Documents) and (ii) the release of
Borrower's obligations under the Loan Documents with respect to that Individual
Property (other than those expressly stated to survive), upon satisfaction of
each of the following conditions:
(1) The principal balance of the Defeased Note shall equal or exceed
the Adjusted Release Amount for the applicable Individual
Property.
(2) The requirements of Paragraph 2.F have been satisfied.
(3) Borrower shall submit to Lender, not less than 30 days prior to
the date of that release, a release of Lien (and related Loan
Documents) for that Individual Property for execution by Lender.
That release shall be in a form appropriate in each jurisdiction
in which the Individual Property is located and satisfactory to
Lender in its sole discretion. In addition, Borrower shall
provide all other documentation Lender reasonably requires to be
delivered by Borrower in connection with that release, together
with an Officer's Certificate of Borrower certifying that such
documentation (i) is in compliance with all Legal Requirements,
(ii) will effect that release in accordance with the terms of
this
14
<PAGE> 19
Agreement, and (iii) will not impair or otherwise adversely affect the
Liens, security interests and other rights of Lender under the Loan
Documents not being released (or as to the parties to the Loan
Documents and Properties subject to the Loan Documents not being
released).
(4) After giving effect to that release, the Debt Service Coverage Ratio
for all of the Properties then remaining subject to the Liens of the
Mortgages shall be equal to the greater of (i) the Debt Service
Coverage Ratio for the twelve (12) full calendar months immediately
preceding the Closing Date, and (ii) the Debt Service Coverage Ratio
for all of the then remaining Properties (including the Individual
Property to be released) for the twelve (12) full calendar months
immediately preceding the release of the Individual Property.
I. SUCCESSOR BORROWER. In connection with any release of a Lien under
Paragraph 2.H, Lender or its designee (together the "DESIGNEE") shall establish
or designate a successor entity (the "SUCCESSOR BORROWER") and Borrower shall
transfer and assign all obligations, rights and duties under and to the Note or
the Defeased Note, as applicable, together with the pledged U.S. Obligations to
that Successor Borrower. The obligation of the Designee to establish or
designate a Successor Borrower shall be retained by the Designee notwithstanding
the sale or transfer of the Loan unless that obligation is specifically assumed
by the transferee. The Successor Borrower shall assume the obligations under the
Note or the Defeased Note, as applicable, and the Security Agreement and
Borrower shall be relieved of its obligations under those documents. Borrower
shall pay $1,000 to any such Successor Borrower as consideration for assuming
the obligations under the Note or the Defeased Note, as applicable, and the
Security Agreement. No assumption fee shall be payable upon a transfer of the
Note in accordance with such a Defeasance accomplished in accordance with the
provisions of this Agreement, but Borrower shall pay all costs and expenses
incurred by Lender, including Lender's attorneys' fees and expenses, incurred in
connection therewith.
J. RELEASE ON PAYMENT IN FULL. Lender shall, upon the written request
and at the expense of Borrower, upon payment in full of all principal and
interest on the Loan and all other amounts due and payable under the Loan
Documents in accordance with the terms and provisions of the Note and this Loan
Agreement, release the Liens of the Mortgages not theretofore released.
3. INTEREST
Interest on the Loan and the Note shall accrue at the Applicable Interest
Rate and shall be calculated in accordance with Paragraph 4. Interest and
principal on the Loan shall be paid in installments as follows: (a) a payment of
interest only on the Closing Date (representing the interest that will accrue
under the Note through June 10, 1998); (b) a constant payment of $124,996.95
(the "MONTHLY DEBT SERVICE PAYMENT AMOUNT"), on the eleventh day of July 1998
and on the eleventh day of each calendar month thereafter up to and including
the eleventh day of May 2028; each of those payments to be applied (i) to the
payment of interest computed at the Initial Interest Rate; and (ii) the balance
applied toward the reduction of the principal sum; and the balance of that
principal sum together with all accrued and unpaid interest thereon shall be due
and payable on the Maturity Date. The constant payment required under the Note
is based on an amortization schedule of 360 months. All amounts due under the
Note shall be payable without setoff, counterclaim or any other deduction
whatsoever.
A. DEFAULT RATE; POST-MATURITY INTEREST. Upon the occurrence of an Event
of Default, Lender shall be entitled to receive and Borrower shall pay to Lender
(a) interest on the entire outstanding principal balance of the Note and any
other amounts due at the Default Rate, and (b) on the eleventh day of each month
during which that Event of Default shall continue, an aggregate amount equal to
the Excess Cash Flow for the prior month, that Excess Cash Flow to be applied by
Lender to the payment of the Debt in that order as Lender shall determine in its
sole discretion, including, without limitation, alternating applications thereof
between interest and principal. Interest at the Default Rate and Excess Cash
Flow shall both be computed from the occurrence of the Event of Default until
the actual receipt and collection of the Debt (or that portion thereof that is
then due). Interest at the Default Rate shall be added to the Debt and shall be
secured by the Mortgages. This Subparagraph 3.A, however, shall not be construed
as an agreement or privilege to extend the date of the payment of the Debt, nor
as a waiver of any other right or remedy accruing to Lender by reason of the
occurrence of any Event of Default; the
15
<PAGE> 20
acceptance of any payment of Excess Cash Flow shall not be deemed to cure or
constitute a waiver of any Event of Default; and Lender retains its rights under
this Note to accelerate and to continue to demand payment of the Debt upon the
happening of any Event of Default, despite any payment of Excess Cash Flow.
B. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to be the
intent of Borrower and Lender at all times to comply with applicable state law
or applicable United States federal law (to the extent that it permits Lender to
contract for, charge, take, reserve, or receive a greater amount of interest
than under state law) and that this Paragraph 3.B shall control every other
covenant and agreement in this Agreement, the Mortgages and the other Loan
Documents. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for under the Note or
under any of the other Loan Documents, or contracted for, charged, taken,
reserved, or received with respect to the Debt, or if Lender's exercise of the
option to accelerate the maturity of the Note, or if any prepayment by Borrower
results in Borrower having paid any interest in excess of that permitted by
applicable law, then it is Borrower's and Lender's express intent that all
excess amounts theretofore collected by Lender shall be credited on the
principal balance of the Note and all other Debt, and the provisions of the Note
and the other Loan Documents immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced, without the necessity
of the execution of any new documents, so as to comply with the applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder. All sums paid or agreed to be paid to Lender for the
use, forbearance, or detention of the Debt shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Debt until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum lawful rate from
time to time in effect and applicable to the Debt for so long as the Debt is
outstanding. Notwithstanding anything to the contrary contained herein or in any
of the other Loan Documents, it is not the intention of Lender to accelerate the
maturity of any interest that has not accrued at the time of such acceleration
or to collect unearned interest at the time of such acceleration.
4. PAYMENTS AND COMPUTATIONS
A. MAKING OF PAYMENTS BY EFT. Each payment by Borrower under this
Agreement or under the Note shall be made in funds settled by Electronic Fund
Transfer through the Automated Clearing House network in funds immediately
available to Lender by 11:00 a.m., New York City time, on the date that payment
is due, to Lender by deposit to those account as Lender may designate by written
notice to Borrower. Whenever any payment hereunder or under the Note shall be
stated to be due on a day that is not a Business Day, that payment shall be made
on the first Business Day prior thereto.
B. COMPUTATIONS. Interest payable hereunder or under the Note by Borrower
shall be computed on the basis of the actual number of days elapsed in the
related interest accrual period over a 360-day year.
C. LATE PAYMENT CHARGE. If any principal, interest or any other sums due
under the Loan Documents is not paid by Borrower on the date on which it is due,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of that unpaid sum or the maximum amount permitted by applicable
law in order to defray the expense incurred by Lender in handling and processing
that delinquent payment and to compensate Lender for the loss of the use of that
delinquent payment. Any such amount shall be secured by the Mortgages and the
other Loan Documents.
D. ANNUAL BUDGETS. If the Loan is not repaid in full by the date which is
three months prior to the Optional Prepayment Date (the "PREPAYMENT WINDOW
DATE"), from and after the Prepayment Window Date until the Optional Prepayment
Date: (i) Borrower shall cause all Rents and other sums collected from, or
arising with respect to, each Properties to be deposited in the Lock-Box
Account; and, provided that there shall not then exist an Event of Default, nor
any event or circumstance that with the giving of notice or the passage of time,
or both, would constitute an Event of Default, (ii) on the third (3rd) day
preceding the day that payment of the Monthly Debt Service Amount is due each
month (or if that day is not a Business Day, the first Business Day preceding
such day) Lender shall instruct the Cash Management Bank to wire to Borrower the
amount collected in the Lock-Box Account as of that date.
16
<PAGE> 21
(1) Not later than the first day of the month in which the Prepayment
Window Date occurs (with respect to the partial year between that date
and the last day of that calendar year), and not later than 60 days
prior to the commencement of each calendar year thereafter, Borrower
shall submit to the Lender for the Lender's written approval an annual
budget (an "ANNUAL BUDGET") for each Individual Property, in form
satisfactory to Lender setting forth in reasonable detail budgeted
monthly operating income and monthly operating capital and other
Qualified Expenses (defined below) for each such Individual Property,
and on a consolidated basis, all Properties. Each such Annual Budget
shall contain, among other things, limitations on management fees,
third party service fees, and other expenses as the Lender may
reasonably determine. Lender shall have the right to approve each such
Annual Budget and in the event that Lender objects to any one or more
of the proposed Annual Budgets submitted by Borrower, Lender shall
advise Borrower of those objections within 15 days after receipt
thereof (and deliver to Borrower a reasonably detailed description of
those objections) and Borrower shall within three days after receipt
of notice of any such objections revise the Annual Budget (both with
respect to each such Individual Property to which those objections
relate, and the consolidated Annual Budget) and resubmit the same to
Lender. Lender shall advise Borrower of any objections to each such
revised Annual Budget within 10 days after receipt thereof (and
deliver to Borrower a reasonably detailed description of those
objections) and Borrower shall promptly revise the same in accordance
with the process described in this Subparagraph 4.D(1) until the
Lender approves an Annual Budget for all Properties, provided,
however, that if Lender shall not advise Borrower of its objections to
any a proposed Annual Budget for an Individual Property within the
applicable time period set forth in this Subparagraph 4.D(1), then the
proposed Annual Budget for that Individual Property shall be deemed
approved by Lender. Each such Annual Budget approved by Lender in
accordance with these terms is an "APPROVED ANNUAL BUDGET." Until that
time when Lender approves a proposed Annual Budget for an Individual
Property, the most recently Approved Annual Budget for that Individual
Property shall apply; provided that such Approved Annual Budget for
that Individual Property shall be adjusted to reflect actual increases
in real estate taxes, insurance premiums and utilities expenses.
Lender acknowledges that Annual Budgets initially submitted to it by
Borrower each year will be "preliminary" in that sense that they will
not have been approved by Borrower's parent (Malan Realty Investors,
Inc.) in accordance with its customary budgeting process, until
approximately December 15th of each year.
(2) The term "QUALIFIED EXPENSES" as used herein means the following items
paid or payable to third parties who are not Affiliated with Borrower,
its partners, members, shareholders or other principals: (a) real
estate taxes, general and special assessments or similar charges; (b)
sales, use and personal property taxes; (c) management fees as the
Lender may reasonably determine, based the Rents actually paid during
the preceding calendar month; (d) insurance premiums including, but
not limited to, casualty, liability, rent and fidelity insurance
premiums; (e) cost of all electricity, oil, gas, water, steam, HVAC
and any other energy, utility or similar item and overtime services,
the cost of building and cleaning supplies, and all other
administrative, operating and maintenance expenses incurred in
connection with the operation of the applicable Properties; (f) the
cost of necessary cleaning, repair, replacement, maintenance,
decoration or painting of existing improvements on the applicable
Properties (including, without limitation, parking lots and roadways),
of like kind and quality or that kind or quality which is necessary to
maintain the applicable Properties to the same standards as
competitive properties of similar size and location to the applicable
Properties; (g) the cost of those other maintenance materials, HVAC
repairs, parts and supplies, and all equipment to be used in the
ordinary course of business; (h) marketing and advertising expenses
for the applicable Properties incurred in the ordinary course of
business and approved by Lender; (i) casualty losses to the extent not
reimbursed by a third party and (j) and other expenses for the
applicable Properties approved by Lender.
17
<PAGE> 22
(3) Notwithstanding the foregoing, the term Qualified Expenses with
respect to any Individual Property shall not include (i) depreciation
or amortization or any other non-cash item of expense unless approved
by Lender; (ii) interest, principal, fees, costs and expense
reimbursements of Lender in administrating the Loan or exercising
remedies under the Note, this Loan Agreement, the Mortgages or the
other Loan Documents; (iii) unless otherwise specifically approved by
Lender in writing, items which are not set forth on an Approved Annual
Budget which has been prepared by Borrower and approved by Lender with
respect to that Properties.
E. HYPERAMORTIZATION AFTER OPTIONAL PREPAYMENT DATE. In the event that
Borrower does not prepay on the Optional Prepayment Date the entire principal
balance of the Note and any other amounts outstanding under this Agreement
and/or any of the other Loan Documents, Borrower shall continue to cause all
Rents and other sums collected from, or arising with respect to, all Properties
to be deposited in the Lock-Box Account, and the following additional provisions
shall apply:
(1) From and after the Optional Prepayment Date, interest shall accrue on
the unpaid principal balance from time-to-time outstanding on this
Note at the Revised Interest Rate. Interest accrued at the Revised
Interest Rate and not paid pursuant to this Paragraph 4.E shall be
deferred and added to the Debt and shall earn interest at the Revised
Interest Rate to the extent permitted by applicable law (that accrued
interest is hereafter defined as "ACCRUED INTEREST"). All of the Debt,
including any Accrued Interest, shall be due and payable on the
Maturity Date.
(2) Commencing on the Optional Prepayment Date and continuing on the
eleventh day of each calendar month thereafter (each such date being
an "APPLICATION DATE") up to and including the Maturity Date, Lender
shall apply all funds in the Lock-Box Account to the payment of the
Monthly Debt Service Payment Amount, to be applied first to the
payment of interest computed at the Initial Interest Rate, with the
remainder applied to the reduction of the outstanding principal
balance of the Note. Provided no Event of Default shall exist, all
funds in the Lock-Box Account in excess of the amount necessary to pay
the Monthly Debt Service Payment Amount shall be applied by Lender on
each Application Date following the Optional Prepayment Date in the
following order of priority: (i) to the payment of required payments
to be made in accordance the Tax and Insurance Escrow Fund, and
thereafter, to the Replacement Escrow Fund and the Rollover Escrow
Fund; (ii) second, provided a Borrower's Requisition (defined below)
has been properly submitted therefor at least five days in advance of
that Application Date, to the payment of all unpaid Qualified Expenses
which have been incurred by Borrower; (iii) third, in payment of
certain Extraordinary Expenses for each of the Properties which have
been approved by Lender; (iv) fourth, in payment of the outstanding
principal due under the Note until that principal amount is paid in
full; (v) fifth to Lender for Accrued Interest; (vi) sixth, to Lender
of any other amounts due under the Loan Documents; and (vii) lastly,
any excess amounts to Borrower.
(3) Borrower shall not make a request for disbursement more than once a
month, and each such disbursement request shall relate to all of the
Mortgaged Properties for which any disbursement is requested that
month. Each request for a disbursement submitted to Lender shall
constitute a representation and warranty by Borrower hereunder and
under the Mortgage that Borrower is entitled to receive a disbursement
from the Lock-Box Account for the items covered thereby in accordance
with clause (ii) of Subparagraph 4.E(2).
(4) The term "BORROWER'S REQUISITION" means a request for disbursement
from the Lock-Box Account for the payment of Qualified Expenses in a
form specified or approved by Lender, which shall at a minimum set
forth (i) the Qualified Expenses for which that request is made, in
the aggregate and on a property-by-property basis, (ii) copies of all
invoices for the related Qualified Expenses in form satisfactory to
Lender, and (iii) unless previously delivered to Lender, evidence
satisfactory to Lender that all Qualified
18
<PAGE> 23
Expenses which were the subject of previous disbursements from the
Lock-Box Account have been paid in full.
(5) Nothing in this Paragraph 4.E shall limit, reduce or otherwise affect
Borrower's obligations to make payments of the Monthly Debt Service
Payment Amount, payments to the Tax and Insurance Escrow Fund, the
Replacement Escrow Fund or the Rollover Escrow Fund, and payments of
other amounts due hereunder and under the other Loan Documents,
whether or not Rents are available to make those payments.
(6) In the event that Borrower must incur an extraordinary operating
expense or capital expense not set forth in the Annual Budget or
allotted for in the Replacement Escrow Fund or the Rollover Escrow
Fund (each an "EXTRAORDINARY EXPENSE"), then Borrower shall promptly
deliver to Lender a reasonably detailed explanation of that proposed
Extraordinary Expense for Lender's approval.
(7) The Lock-Box Account and any sums, notes, drafts, checks, money orders
or other instruments delivered for deposit therein shall constitute
additional security for this Note and any other obligations of
Borrower to Lender hereunder or under the Security Instruments or the
other Loan Documents. Lender and the Cash Management Bank are hereby
authorized and appointed as Borrower's attorney-in-fact to endorse any
checks delivered to the Lock-Box, Lender or the Cash Management Bank
for deposit into the Lock-Box Account.
(8) Within one month of Lender's written demand made at any time on or
after the eleventh day of the calendar month immediately preceding the
Optional Prepayment Date, Borrower shall terminate all existing
management agreements related to any one or more of the Mortgaged
Properties and enter into one or more separate management agreements
with respect to any or all such Mortgaged Properties with a management
company or management companies acceptable to Lender.
F. PAYMENTS RECEIVED IN THE DEPOSIT ACCOUNT. Notwithstanding anything to
the contrary contained in this Agreement or the other Loan Documents, and
provided no Event of Default has occurred and is continuing, Borrower's
obligations with respect to the monthly payment of principal and interest and
amounts due for the Tax and Insurance Escrow Fund, Replacement Escrow Fund,
Rollover Escrow Fund, and any other payment reserves established pursuant to
this Agreement or any other Loan Document, shall be deemed satisfied to the
extent sufficient amounts are deposited in the Deposit Account to satisfy those
obligations on the dates each such payment is required, regardless of whether
any of those amounts are so applied by Lender.
5. CONDITIONS PRECEDENT
A. CONDITIONS PRECEDENT TO CLOSING. The obligation of Lender to make the
Loan is subject to the fulfillment by Borrower or waiver (including any
conditional waiver in connection with the post-Closing compliance provisions of
Paragraph 13.E) by Lender of the following conditions precedent no later than
the Closing Date:
(1) Representations and Warranties; Compliance with Conditions. The
representations and warranties of Borrower contained in this Agreement
and the other Loan Documents shall be true and correct in all material
respects on and as of the Closing Date with the same effect as if made
on and as of that date, and no Default or an Event of Default shall
have occurred and be continuing; and Borrower shall be in compliance
in all material respects with all terms and conditions set forth in
this Agreement and in each other Loan Document on its part to be
observed or performed.
(2) Loan Agreement and Note. Lender shall have received a copy of this
Agreement and the Note, in each case, duly executed and delivered on
behalf of Borrower.
(3) Delivery of Loan Documents; Title Insurance, Reports; Leases.
(a) Mortgages, Etc. Lender shall have received from Borrower fully
executed and acknowledged counterparts of the Mortgages, the
Assignments of Leases and
19
<PAGE> 24
Financing Statements relating to each of the Properties and
evidence that counterparts of the Mortgages, Assignments of
Leases and Financing Statements have been delivered to the title
company for recording and/or filing, in the reasonable judgment
of Lender, so as to effectively create upon that recording valid
and enforceable Liens upon those Properties, of the requisite
priority, in favor of Lender (or such trustee as may be required
or desired under local law), subject only to the Permitted
Encumbrances and those other Liens that are permitted pursuant to
the Loan Documents. Lender shall have also received from Borrower
fully executed counterparts of the Environmental Indemnity, and
Manager's Consent and Subordination of Management Agreement and
the other Loan Documents required by Lender in connection with
the Closing of the Loan.
(b) Title Insurance. Lender shall have received Title Insurance
Policies issued by a title company acceptable to Lender and dated
as of the Closing Date, with reinsurance and direct access
agreements acceptable to Lender. Those Title Insurance Policies
shall (A) provide coverage in amounts satisfactory to Lender, (B)
insure Lender that the relevant Mortgage creates a valid lien on
the Individual Property encumbered thereby of the requisite
priority, free and clear of all exceptions from coverage other
than Permitted Encumbrances and standard exceptions and
exclusions from coverage (as modified by the terms of any
endorsements), (C) contain those endorsements and affirmative
coverages as Lender may reasonably request, and (D) name Lender
as the insured. The Title Insurance Policies shall be assignable.
Lender also shall have received evidence that all premiums in
respect of that Title Insurance Policies have been paid.
(c) Survey. Lender shall have received a current title survey for
each Individual Property, certified to the title company and
Under and their successors and assigns, in form and content
satisfactory to Lender and prepared by a professional and
properly licensed land surveyor satisfactory to Lender in
accordance with the 1996 Minimum Standard Detail Requirements for
ALTA/ACSM Land Title Surveys, and Lender's Survey Guidelines. The
survey should meet the classification of an "Urban Survey" and
the following additional items from the list of "Optional Survey
Responsibilities and Specifications" (Table A) should be added to
each survey: 2, 3, 4, 6, 8, 9, 10, 11 and 13. Each survey shall
reflect the same legal description contained in the Title
Insurance Policies relating to the corresponding Individual
Property and shall include, among other things, a metes and
bounds description of the real property comprising part of that
Individual Property reasonably satisfactory to Lender. The
surveyor's seal shall be affixed to each survey and the surveyor
shall provide a certification for each survey in form and
substance acceptable to Lender.
(d) Insurance. Lender shall have received valid certificates of
insurance for the policies of insurance required hereunder,
satisfactory to Lender in its sole discretion, and evidence of
the payment of all premiums payable for the existing policy
period.
(e) Environmental Reports. Lender shall have received an
environmental report with respect of each Individual Property, in
each case satisfactory to Lender.
(f) Zoning. With respect to each Individual Property, Lender shall
have received, at Lender's option, (i) letters or other
evidence with respect to each Individual Property from the
appropriate municipal authorities (or other Persons) concerning
applicable zoning and building laws, and an ALTA 3.1
zoning endorsement for the applicable Title Insurance Policy, or
(ii) a zoning opinion letter, in substance reasonably
satisfactory to Lender.
20
<PAGE> 25
(g) Encumbrances. Borrower shall have taken or caused to be taken
those actions in such a manner so that Lender has a valid and
perfected Lien of the requisite priority as of the Closing Date
with respect to each Mortgage in the applicable Individual
Property, subject only to applicable Permitted Encumbrances and
those other Liens that are permitted pursuant to the Loan
Documents, and Lender shall have received satisfactory evidence
of the foregoing.
(h) SNDA and Estoppel Requirements. Lender shall have received
executed originals of Subordination, Nondisturbance and
Attornment Agreements and Estoppel Letters from the tenants of
the Individual Properties, in form and substance satisfactory to
Lender.
(4) Related Documents. Each additional document not specifically
referenced in this Agreement, but relating to the transactions
contemplated in this Agreement, shall have been duly authorized,
executed and delivered by all parties thereto and Lender shall have
received and approved certified copies thereof.
(5) Delivery of Organizational Documents. On or before the Closing Date,
Borrower shall deliver to Lender copies certified by Borrower of all
organizational documentation related to Borrower and/or its formation,
structure, existence, good standing and/or qualification to do
business, as Lender may request in its sole discretion, including,
without limitation, good standing certificates, qualifications to do
business in the appropriate jurisdictions, resolutions authorizing the
entering into of the Loan and incumbency certificates requested by
Lender.
(6) Opinions of Borrower's Counsel. Lender shall have received opinions of
Borrower's counsel (both Borrower's general counsel and local counsel,
as applicable) (i) with respect to non-consolidation, and fraudulent
transfer issues, and (ii) with respect to due execution, authority,
enforceability of the Loan Documents and those other matters that
Lender may require, all such opinions in form, scope and substance
satisfactory to Under and Lender's counsel in their sole discretion.
(7) Basic Carrying Costs. Borrower shall have paid all basic carrying
costs relating to each of the Properties that are currently due,
including without limitation, (i) insurance premiums, (ii) Taxes, and
(iii) Other Charges.
(8) Completion of Proceedings. All corporate, organizational and other
proceedings taken or to be taken in connection with the transactions
contemplated by this Agreement and other Loan Documents and all
documents incidental thereto shall be satisfactory in form and
substance to Lender, and Lender shall have received counterpart
originals or certified copies of those documents that Lender may
reasonably request.
(9) Payments. All payments, deposits or escrows required to be made or
established by Borrower under this Agreement, the Note and the other
Loan Documents on or before the Closing Date shall have been paid.
6. REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties (as of the date
of this Agreement and as of the Closing Date) and covenants to Lender:
A. ORGANIZATION. Borrower has been duly organized and is validly existing
and in good standing with requisite power and authority to own its properties
and to transact the businesses in which it is now engaged. Borrower is duly
qualified to do business and is in good standing in each jurisdiction where it
is required to be so qualified in connection with its properties, businesses and
operations. Borrower possesses all rights, licenses, permits and authorizations,
governmental or otherwise, necessary to entitle it to own its properties and to
transact the businesses in which it is now engaged, and the sole business of
Borrower is the ownership, management and operation of the Properties. Borrower
is not a "foreign person" within the meaning of Sections 1445(f)(3) of the Code.
21
<PAGE> 26
B. ENFORCEABILITY. The Note, this Agreement, the Mortgages and the other
Loan Documents are not subject to any right of rescission, set-off, counterclaim
or defense, including the defense of usury, nor would the operation of any of
the terms of the Note, this Agreement, the Mortgages and the other Loan
Documents, or the exercise of any right thereunder, render this Agreement or the
Mortgages unenforceable, in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury.
C. PROCEEDINGS. Borrower has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the other Loan
Documents. This Agreement and those other Loan Documents have been duly executed
and delivered by or on behalf of Borrower and constitute legal, valid and
binding obligations of Borrower enforceable against Borrower in accordance with
their respective terms, subject to applicable bankruptcy, insolvency and similar
laws affecting rights of creditors generally, and subject, as to enforceability,
to general principles of equity (regardless of whether enforcement is sought in
a proceeding in equity or at law).
D. BUSINESS PURPOSE. The Loan is solely for the business purpose of
Borrower, and is not for personal, family, household, or agricultural purposes.
No part of the proceeds of the Loan will be used for the purpose of purchasing
or acquiring any "margin stock" within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System or for any other purpose which would
be inconsistent with Regulation U or any other Regulations of such Board of
Governors, or for any purposes prohibited by Legal Requirements or by the terms
and conditions of this Agreement or the other Loan Documents.
E. NO CONFLICTS. The execution, delivery and performance of this
Agreement and the other Loan Documents by Borrower will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to the Loan Documents) upon any of the property
or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, partnership agreement or other agreement or instrument to
which Borrower is a party or by which any of Borrower's property or assets is
subject, nor will that action result in any violation of the provisions of any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over Borrower or any of Borrower's properties or
assets, and any consent, approval, authorization, order, registration or
qualification of or with any court or any such regulatory authority or other
governmental agency or body required for the execution, delivery and performance
by Borrower of this Agreement or any other Loan Documents has been obtained and
is in full force and effect.
F. LITIGATION/BANKRUPTCY. Except as otherwise set forth on Schedule 6.F,
there are no actions, suits or proceedings at law or in equity by or before any
Governmental Authority or other agency now pending or threatened against or
affecting Borrower or any of the Properties, which actions, suits or
proceedings, if determined against Borrower or any of the Properties, might
materially adversely affect the condition (financial or otherwise) or business
of Borrower or the condition or ownership of any of the Properties. Borrower is
not contemplating either the filing of a petition by it under any state or
federal bankruptcy or insolvency laws or the liquidation of all or a major
portion of Borrower's assets or property, and Borrower has no knowledge of any
Person contemplating the filing of any such petition against it.
G. AGREEMENTS. Borrower is not a party to any agreement or instrument or
subject to any restriction which might materially and adversely affect Borrower
or any of the Properties, or Borrower's business, properties or assets,
operations or condition, financial or otherwise. Borrower is not in default in
any material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument to
which it is a party or by which Borrower or any of its Properties are bound.
There are no prior assignments of the Leases or any portion of the Rents due and
payable or to become due and payable which are presently outstanding.
H. NO PLAN ASSETS. Borrower is not an "employee benefit plan," as defined
in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of
Borrower constitutes or will constitute "plan assets" of one or more such plans
within the meaning of 29 C.F.R. Section 2510.3-101. In addition, (i) Borrower is
not a "governmental plan" within the meaning of Section 3(32) of ERISA and (ii)
transactions by or with Borrower are not subject to state statutes regulating
investments of, and fiduciary obligations with respect to, governmental plans.
22
<PAGE> 27
I. FINANCIAL INFORMATION. All financial data, including, without
limitation, the statements of cash flow and income and operating expense, that
have been delivered to Lender in respect of the Properties (i) is true, complete
and correct in all material respects and fairly present the financial condition
of Borrower, the Properties and any other persons or entities that are the
subject of that date or those financial statements and (ii) to the extent
prepared by an independent certified public accounting firm, have been prepared
in accordance with GAAP consistently applied throughout the periods covered,
except as disclosed therein. Borrower does not have any contingent liabilities,
liabilities for taxes, unusual forward or long term commitments or unrealized or
anticipated losses from any unfavorable commitments that are known to Borrower
and reasonably likely to have a materially adverse effect on any one or more or
all of the Properties or the operation thereof for the use for which they are
presently operated, except as referred to or reflected in those financial
statements. Since the date of those financial statements, there has been no
materially adverse change in the financial condition, operation or business of
Borrower from that set forth in those financial statements. In making the
foregoing representations and warranties, Lender acknowledges that Borrower is
acquiring the Properties with the proceeds of the Loan, and of necessity
conditions the foregoing representations and warranties, as of this date and to
the extent that they are in fact based on information provided to Borrower by
Sellers, or address the Properties themselves, to the Best of Borrower's
Knowledge.
J. FILING AND RECORDING TAXES. All transfer taxes, deed stamps,
intangible taxes or other amounts in the nature of transfer taxes required to be
paid by any Person under applicable Legal Requirements currently in effect in
connection with the transfer of the Properties to Borrower have been paid. All
mortgage, mortgage recording, stamp, intangible or other similar tax required to
be paid by any Person under applicable Legal Requirements currently in effect in
connection with the execution, delivery, recordation, filing, registration,
perfection or enforcement of any of the Loan Documents, including, without
limitation, the Mortgages encumbering the Properties have been paid, and, under
current Legal Requirements, the Mortgages encumbering the Properties are
enforceable in accordance with their respective terms by Lender (or any
subsequent holder thereof).
K. COMPLIANCE AND THE PROPERTY. Borrower represents, warrants and
covenants as follows:
(1) Title. Borrower has good, marketable and insurable fee title to the
real property comprising the Properties, free and clear of all Liens
whatsoever except the Permitted Encumbrances, those other Liens as are
permitted pursuant to the Loan Documents and the Liens created by the
Loan Documents. Each Mortgage intended to encumber any of the
Properties, when properly recorded in the appropriate records,
together with any Uniform Commercial Code financing statements
required to be filed in connection therewith, will create (i) a valid,
perfected lien on the applicable Individual Property, subject only to
Permitted Encumbrances and the Liens created by the Loan Documents and
(ii) perfected security interests in and to, and perfected collateral
assignments of, all personalty (including the Leases), all in
accordance with the terms thereof, in each case subject only to any
applicable Permitted Encumbrances, those other Liens as are permitted
pursuant to the Loan Documents and the Liens created by the Loan
Documents. The Permitted Encumbrances do not materially and adversely
affect the value of or the use of the Property or Borrower's ability
to repay the Loan. There are no claims for payment for work, labor or
materials affecting any of Borrower's Properties which are or may
become a lien prior to, or of equal priority with, the Liens created
by the Loan Documents.
(2) Certificates, Licenses, Status of Property. All certifications,
permits, licenses and approvals, including, without limitation,
certificates of completion and occupancy permits required for the
legal use, occupancy and operation of each Individual Property for the
Permitted Uses (collectively the "LICENSES"), have been obtained and
are in full force and effect. There is no proceeding pending (or, to
the best of Borrower's knowledge, contemplated) for the total or
partial condemnation of, or affecting, any such Individual Property.
23
<PAGE> 28
(3) Boundaries and Zoning. Except as disclosed on the Survey for each
Individual Property provided to and accepted by Lender in connection
with the Closing (and subject to the applicable requirements regarding
those Surveys on Schedule 13.E), All of the Improvements which were
included in determining the appraised value of each Individual
Property lie wholly within the boundaries and building restriction
lines of each Individual Property, and no improvements on adjoining
properties encroach upon each Individual Property, and no easements or
other encumbrances upon the Premises encroach upon any of the
Improvements, so as to affect the value or marketability of each
Individual Property except those which are insured against by title
insurance. All of the Improvements comply with all material
requirements of any applicable zoning and subdivision laws and
ordinances.
(4) Flood Zone. Except as shown on the Surveys, none of the Improvements
on any of the Individual Properties are located in an area as
identified by the Federal Emergency Management Agency as an area
having special flood hazards.
(5) Physical Condition. Except as disclosed in the Engineering Report for
each Individual Property to be provided to and accepted by Lender in
connection with the Closing (and subject to the applicable
requirements regarding those Engineering Reports on Schedule 13.E),
each of the Individual Properties, including, without limitation, all
buildings, improvements, parking facilities, sidewalks, storm drainage
systems, roofs, plumbing systems, HVAC systems, fire protection
systems, electrical systems, equipment, elevators (if any), exterior
sidings and doors, landscaping, irrigation systems and all structural
components, are in good condition, order and repair in all material
respects; there exists no structural or other material defects or
damages in any of the Individual Properties, whether latent or
otherwise, and Borrower has not received notice from any insurance
company or bonding company of any defects or inadequacies in any of
the Individual Properties, or any part thereof, which would adversely
affect the insurability of the same or cause the imposition of
extraordinary premiums or charges thereon or of any termination or
threatened termination of any policy of insurance or bond. In making
the foregoing representations and warranties, Lender acknowledges that
Borrower is acquiring the Properties with the proceeds of the Loan,
and of necessity conditions the foregoing representations and
warranties, as of this date and to the extent that they are in fact
based on information provided to Borrower by Sellers, or address the
Properties themselves, to the Best of Borrower's Knowledge.
(6) Leases. None of the Individual Properties are subject to any Leases
other than the Leases described in the rent rolls delivered to Lender
in connection with this Agreement and applicable to each such
Individual Property. No person has any possessory interest in any
Individual Property or right to occupy the same except under and
pursuant to the provisions of the Leases. The current Leases are in
full force and effect and there are no defaults thereunder by Borrower
or (to the Best of Borrower's Knowledge) by any tenant thereunder, and
there are no conditions that, with the giving of notice, the passage
of time, or both, would constitute defaults thereunder by Borrower or
(to the Best of Borrower's Knowledge) by any tenant thereunder. In
making the foregoing representations and warranties, Lender
acknowledges that Borrower is acquiring the Properties with the
proceeds of the Loan, and of necessity conditions the foregoing
representations and warranties, as of this date and to the extent that
they are in fact based on information provided to Borrower by Sellers,
or address the Properties themselves, to the Best of Borrower's
Knowledge.
(7) Compliance. Borrower and each of the Properties and the use thereof
comply in all material respects with all applicable Legal
Requirements, including, without limitation, building and zoning
ordinances and codes. In making the foregoing representation and
warranty with respect to the Properties, Lender acknowledges that
Borrower is acquiring the Properties with the proceeds of the Loan,
and of necessity conditions the foregoing representation and warranty,
as of this date and to the extent that they are in fact based on
information provided to Borrower by Sellers, or address the Properties
themselves, to
24
<PAGE> 29
the Best of Borrower's Knowledge. Borrower is not in default or
violation of any order, writ, injunction, decree or demand of any
Governmental Authority, the violation of which might materially
adversely affect the condition (financial or otherwise) or business
of Borrower, but Borrower, upon providing Lender with security
satisfactory to the Lender in its sole discretion, may proceed
diligently and in good faith to contest the validity or applicability
of any such statute, ordinance, regulation or requirement.
(8) No Governmental Forfeiture Rights. Borrower represents and warrants to
Lender that there has not been committed by Borrower or any other
person in occupancy of or involved with the operation or use of any of
the Properties any act or omission affording the federal government or
any state or local government the right of forfeiture as against any
of the Properties or any part thereof or any monies paid in
performance of Borrower's obligations under the Note or under any of
the other Loan Documents. In making the foregoing representation and
warranty, Lender acknowledges that Borrower is acquiring the
Properties with the proceeds of the Loan, and of necessity conditions
the foregoing representation and warranty, as of this date and to the
extent that they are in fact based on information provided to Borrower
by Sellers, or address the Properties themselves, to the Best of
Borrower's Knowledge. Borrower hereby covenants and agrees not to
commit, permit or suffer to exist any act, omission or circumstance
affording such right of forfeiture. Borrower shall indemnify Lender
and defend and hold Lender harmless from and against any loss, damage
or injury by reason of the breach of the covenants and agreements or
the representations and warranties set forth in this
Subparagraph6.K(8). Without limiting the generality of the foregoing,
the filing of formal charges or the commencement of proceedings
against Borrower or all or any part of any of the Properties under any
federal or state law for which forfeiture of any of the Properties or
any part thereof or of any monies paid in performance of Borrower's
obligations under the Loan Documents is a potential result, shall, at
the election of Lender, constitute an Event of Default hereunder
without notice or opportunity to cure.
(9) Separate Lots. Each Individual Property is comprised of one or more
parcels which constitute a separate tax lot and does not constitute a
portion of any other tax lot not a part of that Individual Property.
(10) Assessments. There are no pending or proposed special or other
assessments for public improvements or otherwise affecting any of the
Properties, nor are there any contemplated improvements to any of the
Properties that may result in those special or other assessments.
(11) Use of Properties. Each of the Properties is used exclusively for the
Permitted Uses.
(12) Utilities and Public Access. Each of the Properties has rights of
access to public ways and is served by water, sewer, sanitary sewer
and storm drain facilities adequate to service that Property for its
respective intended uses. All public utilities necessary or convenient
to the full use and enjoyment of each of the Properties are located
either in the public right-of-way abutting those Properties (which are
connected so as to serve the Properties without passing over other
property) or in recorded easements serving those Properties and those
easements are set forth in the Title Insurance Policies. All roads
necessary for the use of each of the Properties for their current
respective purposes have been completed and dedicated to public use
and accepted by all Governmental Authorities.
(13) Management Agreement. The master Management Agreement dated May 28,
1998 (the "MANAGEMENT AGREEMENT") between Borrower and Malan Realty
Investors, Inc. ("MANAGER"), pursuant to which Manager operates each
Individual Property, is in full force and effect and there are no
defaults thereunder by Borrower or by Manager, and there are no
conditions which, with the giving of notice, the passage of time, or
both, would constitute defaults thereunder by any party. Borrower
shall maintain the Management Agreement for the operation of each of
the Properties in full force and effect and timely perform all of
Borrower's obligations thereunder and enforce performance of
25
<PAGE> 30
all obligations of the Manager thereunder. The fee due under the
Management Agreement, and the terms and provisions of the Management
Agreement, are subordinate to the Mortgages and the Manager shall
attorn to Lender. Borrower shall not terminate, cancel, modify, renew
or extend the Management Agreement, or enter into any agreement
relating to the management or operation of the Property with Manager
or any other party without the express written consent of Lender,
which consent shall not be unreasonably withheld. If at any time
Lender consents to the appointment of a new Manager, then that new
Manager and Borrower shall, as a condition of Lender's consent,
execute a Manager's Consent and Subordination of Management Agreement
in the form then used by Lender. In the event that Borrower does not
prepay the entire principal balance of the Note and any other amounts
outstanding under the Loan Documents on the Optional Prepayment Date,
or if after the occurrence of an Event of Default Lender shall request
Borrower to terminate the Management Agreement, Borrower shall
terminate the Management Agreement and replace the Manager with a
Manager approved by Lender.
L. SINGLE PURPOSE ENTITY/SEPARATENESS. Borrower represents and warrants
to, and covenants with, Lender that as of the date of this Agreement and until
the Debt is paid in full:
(1) No Other Assets. Borrower does not own and will not own any asset or
property other than (A) the Properties, and (B) incidental personal
property necessary for the ownership or operation of the Properties.
(2) No Other Business. Borrower will not engage in any business other than
the ownership, management and operation of the Properties and Borrower
will conduct and operate its business as presently conducted and
operated.
(3) Contracts with Affiliates. Borrower will not enter into any contract
or agreement with any Affiliate of Borrower, any constituent party of
Borrower, any Guarantor, or any Affiliate of any constituent party,
except upon terms and conditions that are intrinsically fair and
substantially similar to those that would be available on an
arms-length basis with third parties other than any such party.
(4) No Other Indebtedness. Borrower has not incurred and will not incur
any indebtedness, secured or unsecured, direct or indirect, absolute
or contingent (including guaranteeing any obligation), other than (i)
the Debt, (ii) trade and operational debt incurred in the ordinary
course of business with trade creditors and in amounts that are normal
and reasonable under the circumstances, and (iii) debt incurred in the
financing of equipment and other personal property used on the
Premises. No indebtedness other than the Debt may be secured
(subordinate or pari passu) by the Property. Except as set forth in
the immediately preceding sentence, no indebtedness other than the
Debt may be secured (subordinate or pari passu) by the Properties.
(5) Restrictions on Loans. Borrower has not made and will not make any
loans or advances to any third party (including any Affiliate or
constituent party, any Guarantor or any Affiliate of any constituent
party or Guarantor), and shall not acquire obligations or securities
of its Affiliates.
(6) Solvency. Borrower is and will remain solvent and Borrower will pay
its debts and liabilities (including, as applicable, shared personnel
employment and overhead expenses) from its assets as the same shall
become due.
(7) Organizational Integrity. Borrower has done or caused to be done and
will do all things necessary to observe organizational formalities and
preserve its existence, and Borrower will not, nor will Borrower
permit any constituent party to amend, modify or otherwise change the
partnership certificate, partnership agreement, articles of
incorporation and bylaws, operating agreement, articles of
organization, trust or other organizational documents of Borrower or
that constituent party without the prior written consent of Lender.
26
<PAGE> 31
(8) Books and Records. Borrower will maintain books, records, financial
statements and bank accounts separate from those of its Affiliates and
any constituent party and Borrower will file its own tax returns.
Borrower shall maintain its books, records, resolutions and agreements
as official records.
(9) Separate and Distinct Status. Borrower will be, and at all times will
hold itself out to the public as, a legal entity separate and distinct
from any other entity (including any Affiliate of Borrower or
constituent party of Borrower or any Guarantor or any Affiliate of any
Guarantor), shall correct any known misunderstanding regarding its
status as a separate entity, shall conduct business in its own name,
and shall not identify itself or any of its Affiliates as a division
or part of the other
(10) Capitalization. Borrower is adequately capitalized and will maintain
adequate capital for the normal obligations reasonably foreseeable in
a business of its size and character and in light of its contemplated
business operations.
(11) No Liquidation or Dissolution. Neither Borrower nor any constituent
party will seek or effect the liquidation, dissolution, winding up,
liquidation, consolidation or merger, in whole or in part, of
Borrower.
(12) No Commingling. Borrower will not commingle the funds and other assets
of Borrower with those of any Affiliate or constituent party, any
Guarantor, or any Affiliate of any constituent party of Guarantor, or
any other Person.
(13) Separation of Assets. Borrower has and will maintain its assets in
such a manner that it will not be costly or difficult to segregate,
ascertain or identify its individual assets from those of any
Affiliate or constituent party, any Guarantor, or any Affiliate of any
constituent party of Guarantor, or any other Person.
(14) Not Responsible for Other's Obligations. Borrower does not and will
not hold itself out to be responsible for the debts or obligations of
any other Person.
(15) SPC Management. If Borrower is a limited partnership or a limited
liability company, each general partner or managing member (an "SPC
MEMBER") is a corporation whose sole asset is its interest in Borrower
and each general partner or SPC Member will at all times comply, and
will cause Borrower to comply, with each of the representations,
warranties, and covenants contained in this Paragraph 6.K as if that
representation, warranty or covenant was made directly by that general
partner or SPC Member.
(16) Independent Director Requirement. Borrower shall at all times cause
there to be at least one duly appointed member of the board of
directors (an "INDEPENDENT DIRECTOR") of (or each general partner or
SPC Member of) Borrower reasonably satisfactory to Lender who shall
not have been at the time of that individual's appointment, and may
not have been at any time during the preceding five years (i) a
shareholder of, or an officer, director, partner, member or employee
of, Borrower or any of its shareholders, subsidiaries or Affiliates,
(ii) a customer of, or supplier to, Borrower or any of its
shareholders, subsidiaries or Affiliates, (iii) a person or other
entity controlling or under common control with any that shareholder,
partner supplier or customer, or (iv) a member of the immediate family
of any such shareholder, officer, director, partner, member, employee,
supplier or customer of any other director of Borrower. As used in
this Agreement, the term "CONTROL" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a person or entity, whether through
ownership of voting securities, by contract or otherwise.
(17) Required Participation by Independent Director. Borrower shall not
cause or permit the board of directors of Mortgagor (or each general
partner or SPC Member of Borrower, as applicable) to take any action
which, under the terms of any certificate of incorporation, by-laws or
any voting trust agreement with respect to any common stock, requires
a vote of the board of directors of Borrower (or each general partner
or SPC Member of
27
<PAGE> 32
Borrower, as applicable) unless at the time of that action there shall
be at least one member who is an Independent Director.
(18) Insolvency Opinion. Borrower shall conduct its business so that the
assumptions made with respect to Borrower in that certain opinion
letter dated the date of this Agreement (the "INSOLVENCY OPINION")
delivered by Miro, Weiner & Kramer, P.C. in connection with the Loan
shall be true and correct in all respects.
M. FULL AND ACCURATE DISCLOSURE. No statement of fact made by Borrower in
this Agreement or in any of the other Loan Documents contains any untrue
statement of a material fact or omits to state any material fact necessary to
make statements contained herein or therein not misleading. To the extent that
any such statement of fact is based upon information provided by Sellers, that
statement of fact has been made to the Best of Borrower's Knowledge, and the
foregoing representation and warranty is similarly conditioned. There is no
material fact presently known to Borrower which has not been disclosed to Lender
which adversely affects, nor as far as Borrower can foresee, might adversely
affect, any of the Properties or the business, operations or condition
(financial or otherwise) of Borrower.
N. SURVIVAL OF REPRESENTATIONS/UNINTENTIONAL BREACH. All of the
representations and warranties of Borrower set forth in Paragraph 6 and
elsewhere in this Agreement and in the other Loan Documents shall survive for so
long as the context thereof requires but at least as long as any amount remains
owing to Lender under this Agreement or any of the other Loan Documents by
Borrower. Any representation or warranty that is conditioned upon the Best of
Borrower's Knowledge is so conditioned only as of the date of this Agreement so
that Borrower will not be subject to an immediate Event of Default under
Paragraph 14.E if the that representation or warranty, if not conditioned upon
that knowledge, should prove to be false, incorrect or inaccurate in any respect
(an "UNINTENTIONAL BREACH"). However, in that event, Borrower continues to
responsible for curing the factual conditions or circumstances causing that
Unintentional Breach, shall immediately notify Lender of that Unintentional
Breach and shall cure that unintentional Breach within the earlier of: (A) 30
days after that date when Borrower first becomes aware of that Unintentional
Breach or first receives notice of from Lender of a default under this Agreement
based upon such an Unintentional Breach, whichever shall first occur, provided,
however, if that Unintentional Breach is reasonably susceptible of cure, but not
within that 30 day period, then Borrower may be permitted up to an additional 60
days to cure that Unintentional Breach, provided that Borrower diligently and
continuously pursues that cure; or (B) where the Unintentional Breach involves a
fact, circumstance or condition for which a cure period is otherwise provided
under this Agreement or any of the other Loan Documents (e.g., a violation of
laws or ordinances addressed by Paragraph 14.J, for which a 30 day cure period
is provided). All representations, warranties, covenants and agreements made in
this Agreement or in the other Loan Documents by Borrower shall be deemed to
have been relied upon by Lender notwithstanding any investigation heretofore or
hereafter made by Lender or on its behalf.
7. AFFIRMATIVE COVENANTS
From the date of this Agreement and until payment and performance in full
of all obligations of Borrower under the Loan Documents or the earlier release
of the Liens of all Mortgages encumbering the Properties (and all related
obligations) in accordance with the terms of this Agreement and the other Loan
Documents, Borrower fully perform, comply with and conform to the following:
A. EXISTENCE; COMPLIANCE WITH LEGAL REQUIREMENTS; INSURANCE. Borrower
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its existence, rights, licenses, permits and franchises
and comply with all Legal Requirements applicable to it and its Properties.
Borrower shall at all times maintain, preserve and protect all franchises and
trade names and preserve all the remainder of its property used or useful in the
conduct of its business and shall keep all of the Properties in good working
order and repair, and from time-to-time make, or cause to be made, all
reasonably necessary repairs, renewals, replacements, betterments and
improvements thereto, all as more fully provided in the Mortgages encumbering
those Properties. Borrower shall keep each of the Properties insured at all
times by financially sound and reputable insurers, to that extent and against
those risks, and maintain liability and such other insurance, as is more fully
provided in this Agreement.
28
<PAGE> 33
B. TAXES AND OTHER CHARGES. Borrower shall pay all Taxes and Other
Charges now or hereafter levied or assessed or imposed against the Properties or
any part thereof as the same become due and payable; provided, however,
Borrower's obligation to directly pay Taxes, for which it has deposited with
Lender funds in escrow in compliance with the with the terms and provisions of
Paragraph 13.A, shall be suspended for so long as Borrower complies therewith
and there does not exist any Event of Default. Borrower will deliver to Lender
receipts for payment or other evidence satisfactory to Lender that the Taxes and
Other Charges have been so paid or are not then delinquent no later than 30 days
prior to the date on which the Taxes and/or Other Charges would otherwise be
delinquent if not paid (provided, however, that Borrower will not be required to
furnish those Tax payment receipts in the event that the corresponding Taxes
have been paid by Lender pursuant to Paragraph 13.A). Borrower shall not suffer
and shall promptly cause to be paid and discharged any lien or charge whatsoever
which may be or become a lien or charge against the Properties, and shall
promptly pay for all utility services provided to the Properties. Borrower shall
furnish to Lender receipts for the payment of the Taxes and the Other Charges
prior to the date the same shall become delinquent. Notwithstanding the
foregoing, Borrower shall not be in default for failure to pay or discharge
Taxes, Other Charges or mechanic's or materialman's liens asserted against the
Property and contested in good faith by Borrower (the "CONTESTED CLAIMS") if,
and so long as, (a) Borrower shall have notified Lender of those Contested
Claims within five days of obtaining knowledge thereof; (b) Borrower shall
diligently and in good faith contest the Contested Claims by appropriate legal
proceedings which shall operate to prevent the enforcement or collection of the
Contested Claims and the sale of the Property or any part thereof, to satisfy
the Contested Claims; (c) Borrower shall have furnished to Lender a cash
deposit, or an indemnity bond satisfactory to Lender with a surety satisfactory
to Lender, in the amount of the Taxes, Other Charges or mechanic's or
materialman's lien claim, plus a reasonable additional sum to pay all costs,
interest and penalties that may be imposed or incurred in connection therewith,
to assure payment of the matters under contest and to prevent any sale or
forfeiture of any of the Properties or any part thereof; (d) Borrower shall
promptly upon final determination of the Contested Claims pay the amount of any
such Taxes, Other Charges or claim so determined, together with all costs,
interest and penalties which may be payable in connection therewith; (e) the
failure to pay the Taxes, Other Charges or mechanic's or materialman's lien
claim does not constitute a default under any other deed of trust, mortgage or
security interest covering or affecting any part of any of the Properties; and
(f) notwithstanding the foregoing, Borrower shall immediately upon request of
Lender pay (and if Borrower shall fail so to do, Lender may, but shall not be
required to, pay or cause to be discharged or bonded against) any such Taxes,
Other Charges or claim notwithstanding that contest, if in the opinion of
Lender, any of the Properties or any part thereof or interest therein may be in
danger of being sold, forfeited, foreclosed, terminated, canceled or lost.
Lender may pay over any such cash deposit or part thereof to the claimant
entitled thereto at any time when, in the judgment of Lender, the entitlement of
that claimant is established.
C. ACCESS TO PREMISES. Borrower shall permit agents, representatives and
employees of Lender to inspect any of its Properties or any part thereof at
reasonable hours upon reasonable advance notice.
D. LITIGATION. Borrower shall give prompt written notice to Lender of any
litigation or governmental proceedings pending or threatened against Borrower
that might materially and adversely affect Borrower's condition (financial or
otherwise) or business or any of the Properties.
E. COOPERATE IN LEGAL PROCEEDINGS. Borrower shall fully cooperate with
Lender with respect to any proceedings before any court, board or other
Governmental Authority which may in any way affect the rights of Lender
hereunder or any rights obtained by Lender under any of the other Loan Documents
and, in connection therewith, permit Lender, at its election, to participate in
those proceedings.
F. INSURANCE BENEFITS. Borrower shall cooperate with Lender in obtaining
for Lender the benefits of any Insurance Proceeds lawfully or equitably payable
in connection with any of the Properties, and Lender shall be reimbursed for
any expenses incurred in connection therewith (including attorneys' fees and
disbursements, and the payment by Borrower of the expense of an appraisal on
behalf of Lender in case of a fire or other casualty affecting any of the
Properties or any part thereof) out of those Insurance Proceeds.
29
<PAGE> 34
G. NOTICE OF DEFAULT. Borrower shall promptly advise Lender of any
material adverse change in Borrower's condition, financial or otherwise, or of
the occurrence of any Default or Event of Default of which Borrower has
knowledge.
H. FURTHER ACTS AND ASSURANCES. Borrower shall, at Borrower's sole cost
and expense, do, execute, acknowledge and deliver all and every such further
acts, deeds, conveyances, mortgages, assignments, notices of assignment,
Uniform Commercial Code financing statements or continuation statements,
transfers and assurances as Lender shall, from time to time, require, for the
better assuring, conveying, assigning, transferring, and confirming unto Lender
the property and rights now or hereafter intended to be created for Lender's
benefit under the Mortgages and other Loan Documents, or which Borrower
may be or may hereafter become bound to convey or assign to Lender, or for
carrying out the intention or facilitating the performance of the terms of this
Agreement, the Mortgages or the other Loan Documents, or for filing,
registering or recording this the Mortgages, any financing statements or other
Loan Documents, or for facilitating the sale of the Loan and the Loan Documents
as described in Paragraph 7.O of this Agreement, or to otherwise evidence,
preserve and/or protect the collateral at any time securing or intended to
secure the obligations of Borrower under the Loan Documents, in each case as
Lender may reasonably require. Borrower, on demand, will execute and deliver
and hereby authorizes Lender to execute in the name of Borrower or without the
signature of Borrower to the extent Lender may lawfully do so, one or more
financing statements, chattel mortgages or other instruments, to evidence more
effectively the security interest of Lender in the Properties. Upon foreclosure
under any of the Mortgages, the appointment of a receiver or any other relevant
action, Borrower will, at Borrower's cost and without expense to Lender,
cooperate fully and completely to effect the assignment or transfer of any
license, permit, agreement or any other right necessary or useful to the
operation of each Individual Property. Borrower grants to Lender an irrevocable
power of attorney coupled with an interest for the purpose of exercising and
perfecting any and all rights and remedies available to Lender at law and in
equity, including, without limitation, such rights and remedies available to
Lender pursuant to this Paragraph 7.H.
I. TAXES. As of this date, Borrower represents that it has paid all
state, county and municipal recording, intangible and other taxes imposed upon
the execution and recordation of the Mortgages encumbering each of the
Properties or upon either the execution and delivery of the Note. If at any
time Lender determines, based on applicable law, that Lender is not
being afforded the maximum amount of security available from any one or more of
the Properties as a direct or indirect result of applicable taxes not having
been paid with respect to any such Properties, Borrower will execute,
acknowledge and deliver to Lender, immediately upon Lender's request,
supplemental affidavits or other appropriate documents or instruments
increasing the amount of the Debt attributable to any such Individual Property
(as set forth on Exhibit B) to an amount determined by Lender to be equal to
the lesser of (i) the greater of the fair market value of the applicable
Individual Property (A) as of this date and (B) as of the date those
supplemental documents are to be delivered to Lender, and (ii) the amount of
the Debt attributable to any such Individual Property (as set forth on Exhibit
B), and Borrower shall, on demand, pay any additional taxes.
J. BUSINESS AND OPERATIONS. Borrower will continue to engage in the
businesses presently conducted by it as and to the extent necessary for the
ownership, maintenance, management and operation of each of the Properties.
Borrower will qualify to do business and will remain in good standing under the
laws of each jurisdiction as and to the extent required for the ownership,
maintenance, management and operation of each of the Properties.
K. TITLE TO THE PROPERTIES. Borrower will warrant and defend (i) the
title to each of the Properties and every part thereof, subject only to Liens
permitted hereunder (including Permitted Encumbrances), and (ii) the validity
and priority of the Liens of the Mortgages and the Assignments of Leases on the
Properties, subject only to Liens permitted hereunder (including Permitted
Encumbrances), in each case against the claims of all Persons. Borrower shall
reimburse Lender for any losses, costs, damages or expenses (including
reasonable attorneys' fees and court costs) incurred by Lender if an interest in
any of the Properties, other than as permitted hereunder, is claimed by another
Person.
L. COSTS OF ENFORCEMENT. In the event (i) that any Mortgage encumbering
any of the Properties is foreclosed in whole or in part or that any such
Mortgage is put into the hands of an attorney
30
<PAGE> 35
for collection, suit, action or foreclosure, (ii) of the foreclosure of any
mortgage prior to or subsequent to any Mortgage encumbering any of the
Properties in which proceeding Lender is made a party, or (iii) of the
bankruptcy, insolvency, rehabilitation or other similar proceeding with respect
to Borrower or an assignment by Borrower for the benefit of its creditors,
Borrower, its successors or assigns, shall be chargeable with and agrees to pay
all costs of collection and defense, including attorneys' fees in connection
therewith and in connection with any appellate proceeding or post-judgment
action involved therein, which shall be due and payable together with all
required service or use taxes.
M. ESTOPPEL CERTIFICATES AND CONFIRMATIONS. After request by Lender,
Borrower shall within 10 days furnish Lender with a certificate, duly
acknowledged and certified, setting forth (i) the amount of the original
principal amount of the Note, (ii) the unpaid principal amount of the Note,
(iii) the Applicable Interest Rate of the Note, (iv) the date installments of
interest and/or principal were last paid, (v) any offsets or defenses to the
payment of the Debt, if any, and (vi) that the Note, this Agreement, the
Mortgages and the other Loan Documents are valid, legal and binding obligations
and have not been modified or if modified, giving particulars of that
modification. After request by Lender, Borrower shall within 10 days furnish
Lender with a certificate reaffirming all representations and warranties of
Borrower set forth in this Agreement and/or in the other Loan Documents as of
the date requested by Lender or, to the extent of any changes to any of those
representations and warranties, stating and explaining those changes. Borrower
shall deliver to Lender upon request, tenant estoppel certificates from each
commercial tenant at each Individual Property (or with respect to those
Individual Properties for which Lender may make that request) in form and
substance reasonably satisfactory to Lender provided that Borrower shall not be
required to deliver those certificates more frequently than two (2) times in any
calendar year. Upon request by Lender in connection with any Secondary Market
Transaction, Borrower shall deliver (i) one or more Officer's Certificates
certifying as to the accuracy of all representations made by Borrower in the
Loan Documents as of the date of the closing of that Secondary Market
Transaction in all relevant jurisdictions, and (ii) certificates of the relevant
Governmental Authorities in all relevant jurisdictions indicating the good
standing and qualification of Borrower and its general partner or managing
member as of the date of that Secondary Market Transaction.
N. PERFORMANCE BY BORROWER. Borrower shall in a timely manner observe,
perform, satisfy and fulfill each and every covenant, term and provision of, and
shall pay when due all costs, fees and expenses to the extent required under,
each Loan Document executed and delivered by, or applicable to, Borrower, and
shall not enter into or otherwise suffer or permit any amendment, waiver,
supplement, termination or other modification of any Loan Document executed and
delivered by, or applicable to, Borrower without the prior written consent of
Lender. Borrower shall comply with all of the recommendations concerning the
maintenance and repair of each Individual Property which are contained in the
inspection and engineering reports delivered to Lender in connection with the
origination of the Loan.
O. COOPERATION. Borrower acknowledges that Lender and its successors and
assigns may (i) sell this Agreement, the Mortgages, the Note and other Loan
Documents to one or more investors as a whole loan, (ii) participate the Loan
secured by the Mortgages to one or more investors, (iii) deposit the Mortgages,
the Note and other Loan Documents with a trust, which trust may sell
certificates to investors evidencing an ownership interest in the trust assets,
or (iv) otherwise sell the Loan or interest therein to investors (the
transactions referred to in clauses [i] through [iv] are hereinafter each
referred to as a "SECONDARY MARKET TRANSACTION"). Borrower shall cooperate with
Lender in effecting any such Secondary Market Transaction and shall cooperate to
implement all requirements imposed by any Rating Agency involved in any
Secondary Market Transaction. Borrower shall provide such information, legal
opinions and documents relating to Borrower, Guarantor, if any, the Property and
any tenants of the Improvements as Lender may reasonably request in connection
with that Secondary Market Transaction. In addition, Borrower shall make
available to Lender all information concerning its business and operations that
Lender may reasonably request. Lender shall be permitted to share all such
information with the investment banking firms, Rating Agencies, accounting
firms, law firms and other third-party advisory firms involved with the Loan and
the Loan Documents or the applicable Secondary Market Transaction. It is
understood that the information provided by Borrower to Lender may ultimately be
incorporated into the offering documents for the Secondary Market Transaction
and thus various investors may also see some or all of the information. Lender
and all of the aforesaid third-party advisors
31
<PAGE> 36
and professional firms shall be entitled to rely on the information supplied by,
or on behalf of, Borrower. Borrower shall indemnify Lender as to any losses,
claims, damages or liabilities that arise out of or are based on any untrue
statement or alleged untrue statement of any material fact contained in that
information or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated in that information or
necessary in order to make the statements in that information, or in light of
the circumstances under which they were made, not misleading. Lender may
publicize the existence of the Loan in connection with its marketing for a
Secondary Market Transaction or otherwise as part of its business development.
P. DSCR ACHIEVEMENT. For the purpose of providing Lender the option of
requiring a change in the continuing management of the Properties, commencing on
the first day of June, 1999, Borrower shall achieved, and as of each three month
period occurring thereafter, and within 45 days of the end of each calendar
quarter (the "DSCR DETERMINATION DATE") shall provide evidence to Lender of the
achievement of, a Debt Service Coverage Ratio for the Properties of not less
than 1.10 to 1.0 over the trailing 12 months ended on each of those measurement
dates. If that ratio is not maintained, Borrower shall, at the request of
Lender, terminate the Management Agreement and replace the Manager with a
manager approved by Lender on terms and conditions satisfactory to Lender. All
calculations of Debt Service Coverage Ratio shall be subject to verification by
Lender. Borrower's failure to maintain the foregoing Debt Service Coverage Ratio
shall not, in and of itself, constitute a breach of this Agreement or an event
of Default.
Q. LOCK-BOX AGREEMENT. Borrower represents, warrants and covenants that
unless waived by Lender it shall establish and maintain (i) one or more clearing
account agreements dated as of the date of this Agreement between Borrower,
Lender and various financial institutions collectively (the "CLEARING
AGREEMENT"), (ii) that certain deposit account agreement dated as of the date of
this Agreement between Borrower, Lender and various financial institutions (the
"DEPOSIT AGREEMENT"), and (iii) any replacements or substitutions of the
Clearing Agreement or the Deposit Agreement (the Clearing Agreement, the Deposit
Agreement and any modifications, amendments, replacements or substitutions
thereof are hereinafter collectively referred to as the "LOCK-BOX AGREEMENT").
Borrower shall deposit or cause to be deposited all Rents collected from the
Properties in the accounts established and maintained pursuant to the Lock-Box
Agreement in accordance with the terms and provisions thereof. Borrower shall
pay all costs and expenses required under the Lock-Box Agreement.
8. NEGATIVE COVENANTS
From the date of this Agreement until payment and performance in full of
all obligations of Borrower under the Loan Documents or the earlier release of
the Liens of all Mortgages encumbering each of the Properties in accordance with
the terms of this Agreement and the other Loan Documents, Borrower covenants and
agrees with Lender that it will not do, directly or indirectly, any of the
following:
A. LIENS. Borrower shall not, without the prior written consent of
Lender, create, incur, assume or suffer to exist any Lien on any portion of any
of the Properties or permit any such action to be taken, except: (i) Permitted
Encumbrances; (ii) Liens created by or permitted pursuant to the Loan Documents;
and (iii) Liens for Taxes, or Other Charges not yet due.
B. DEBT CANCELLATION. Borrower shall not cancel or otherwise forgive or
release any claim or debt (other than termination of Leases in accordance
herewith) owed to Borrower by any Person, except for adequate consideration and
in the ordinary course of Borrower's business.
C. ZONING. Borrower shall not initiate or consent to any zoning
reclassification of any portion of any of the Properties or seek any variance
under any existing zoning ordinance or use or permit the use of any portion of
any of the Properties in any manner that could result in that use becoming a
non-conforming use under any zoning ordinance or any other applicable land use
law, rule or regulation, without the prior consent of Lender.
D. RESTRICTIONS ON TRANSFERS. Without the prior written consent of
Lender: (i) no Transfer shall occur, whether voluntarily or involuntarily, in
violation of the covenants and conditions set forth in the Mortgage; and (ii)
there shall not occur any Transfer in the ownership, management or control of
Manager (subject to the same definitions, criterion and permitted Transfers that
apply to Borrower under Paragraph 8 of the Mortgage).
32
<PAGE> 37
E. NO JOINT ASSESSMENT. Borrower shall not suffer, permit or initiate the
joint assessment of any Individual Property (i) with any other real property
constituting a tax lot separate from that Individual Property, and (ii) with any
portion of that Individual Property which may be deemed to constitute personal
property, or any other procedure whereby the lien of any taxes which may be
levied against that personal property shall be assessed or levied or charged to
that Individual Property.
F. PRINCIPAL PLACE OF BUSINESS. Borrower shall not change its principal
place of business set forth on the first page of this Agreement without first
giving Lender 30 days prior written notice.
9. LEASES AND LEASING
A. LEASING. All Leases shall be written on the standard form of lease
approved by Lender. No material changes may be made to the Lender-approved
standard lease without Lender's prior written consent. All Leases shall provide
that they are subordinate to the Mortgage applicable to that Individual Property
and that the tenant agrees to attorn to Lender. Unless otherwise approved by
Lender, each Lease shall contain a provision requiring continuous operations of
tenant's business on the premises, and shall contain a prohibition against
tenant operating a competing business at or near the respective Individual
Property. None of the Leases shall contain any option to purchase, any right of
first refusal to lease or purchase, any right to terminate the lease term
(except in the event of the destruction of all or substantially all of the
applicable Individual Property), any non-disturbance or similar recognition
agreement, any requirement that Borrower rebuild that Individual Property in
connection with a casualty or condemnation of any portion of that Individual
Property, or any other similar provisions which adversely affect the Individual
Properties or which might adversely affect the rights of any holder of the Loan
without the prior written consent of Lender, which consent will not be
unreasonably withheld or delayed. Each tenant shall conduct business only in
that portion of the Individual Property covered by its Lease. Upon request,
Borrower shall furnish Lender with executed copies of all Leases.
B. BORROWER' PERFORMANCE AS LANDLORD. Borrower (i) shall observe and
perform all the obligations imposed upon the lessor under the Leases and shall
not do or permit to be done anything to impair the value of the Leases as
security for the Debt; (ii) shall promptly send copies to Lender of all notices
of material default by Borrower which Borrower shall receive with respect to any
Leases; (iii) shall not collect any of the Rents more than one (1) month in
advance; (iv) shall not execute any other assignment of the lessor's interest in
the Leases or the Rents; and (v) shall execute and deliver at the request of
Lender all such further assurances, confirmations and assignments in connection
with the Property as Lender shall from time-to-time require. Upon request by
Lender after an Event of Default, Borrower shall promptly send copies to Lender
of all notices of default that Borrower shall send under the Leases. Except to
the extent Borrower is acting in the ordinary course of business as a prudent
operator of property similar to the Property, Borrower (A) shall enforce all of
the terms, covenants and conditions contained in the Leases upon the part of the
tenant thereunder to be observed or performed, short of termination thereof; (B)
shall not alter, modify or change the terms of the Leases in any material
respect without the prior written consent of Lender; (C) shall not convey or
transfer or suffer or permit a conveyance or transfer of the Property or of any
interest therein so as to effect a merger of the estates and rights of, or a
termination or diminution of the obligations of, tenants under the Leases; (D)
shall not consent to any assignment of or subletting under the Leases not in
accordance with their terms, without the prior written consent of Lender; and
(E) shall not cancel or terminate the Leases or accept a surrender thereof,
except if a tenant is in default thereunder; provided, however, that any Lease
may be canceled if at the time of the cancellation thereof a new Lease is
entered into on substantially the same terms or more favorable terms as the
canceled Lease.
C. RESTRICTIONS UPON RENEWALS AND LEASING. Borrower may enter into
proposed new Leases and proposed renewals or extensions of existing Leases
without the prior written consent of Lender if that proposed Lease or extension:
(i) is not for greater than or equal to the greater of 3,000 square feet
(including all load factors, if any) or ten percent (10%) of the gross leaseable
area of the applicable Individual Property, or greater than or equal to ten
percent (10%) of the total gross rental revenues of the applicable Individual
Property; (ii) shall have an initial term of not less than three years or
greater than 10 years; (iii) shall provide for rental rates comparable to
existing local market rates and shall be an arms-length transaction; (iv) shall
not contain any options for renewal or expansion by the tenant thereunder at
rental rates which are either below comparable market levels or less than the
rental rates
33
<PAGE> 38
paid by the tenant during the initial lease term; (v) shall be to a
tenant which is experienced, creditworthy and reputable; and (vi) shall comply
with the requirements of Subparagraph 9.B, above. Borrower may enter into a
proposed lease which does not satisfy all of the conditions set forth in clauses
(i) through (vi) immediately above only with the prior written consent of
Lender, that consent not to be unreasonably withheld or delayed. Borrower
expressly understands that any and all new or proposed leases are included in
the definition of "LEASE" or "LEASES" as those terms may be used throughout the
Mortgage applicable to each Individual Property and the other Loan Documents.
D. SECURITY DEPOSITS. All security deposits of tenants, whether held in
cash or any other form, shall not be commingled with any other funds of Borrower
and, if cash, shall be deposited by Borrower at such commercial or savings bank
or banks as may be reasonably satisfactory to Lender. Notwithstanding the
foregoing, security deposits of tenants which are received by Borrower in cash
may be commingled with other funds of Borrower if: (i) permitted by law and (ii)
either (A) they do not in the aggregate with respect to all Properties exceed
$50,000 at any one time and no Event of Default shall exist, or (B) a bond for
the full amount thereof is posted in accordance with the provisions of law and
the following provisions of this Paragraph 9.D. Any bond or other instrument
which Borrower is permitted to hold in lieu of cash security deposits under any
applicable legal requirements shall be maintained in full force and effect in
the full amount of those deposits unless replaced by cash deposits as
hereinabove described, shall be issued by an institution reasonably satisfactory
to Lender, shall, if permitted pursuant to any legal requirements, name Lender
as payee or Lender thereunder (or at Lender's option, be fully assignable to
Lender) and shall, in all respects, comply with any applicable legal
requirements and otherwise be reasonably satisfactory to Lender. Borrower shall,
upon request, provide Lender with evidence reasonably satisfactory to Lender of
Borrower's compliance with the foregoing. Following the occurrence and during
the continuance of any Event of Default, Borrower shall, upon Lender's request,
if permitted by any applicable legal requirements, turn over to Lender the
security deposits (and any interest theretofore earned thereon) with respect to
all or any portion of each Individual Property, to be held by Lender subject to
the terms of the Leases applicable thereto.
10. FINANCIAL REPORTING
Borrower will keep and maintain or will cause to be kept and maintained on
a Fiscal Year basis, in accordance with GAAP (or those other accounting basis
reasonably acceptable to Lender), proper and accurate books, records and
accounts reflecting all of the financial affairs of Borrower and all items of
income and expense in connection with the operation on an individual basis of
each of the Properties. Lender shall have the right from time-to-time at all
times during normal business hours upon reasonable notice to examine those
books, records and accounts at the office of Borrower or other Person
maintaining those books, records and accounts and to make those copies or
extracts thereof as Lender shall desire. After the occurrence of an Event of
Default, Borrower shall pay any costs and expenses incurred by Lender to examine
Borrower's accounting records with respect to the Properties, as Lender shall
determine to be necessary or appropriate in the protection of Lender's interest.
A. REPORTING REQUIREMENTS. Borrower will furnish, or cause to be
furnished, to Lender on or before 45 days after the end of each calendar quarter
the following items separately reported for each Individual Property, each
certified by Borrower as being true and correct: (i) a written statement (rent
roll) dated as of the last day of each such calendar quarter identifying each of
the Leases by the term, space occupied, rental required to be paid, security
deposit paid, any rental concessions, and identifying any defaults or payment
delinquencies thereunder; and (ii) quarterly and year-to-date operating
statements prepared for each calendar quarter, each of which shall include an
itemization of actual (not pro forma) capital expenditures during the applicable
period. Until a Secondary Market Transaction has occurred (or if Lender has
given Borrower notice that it does not presently, but may thereafter, intend to
include the Loan in a Secondary Market Transaction, then after Lender shall give
a subsequent notice that such a Secondary Market Transaction is expected, and
thereafter until that transaction shall occur or be abandoned), Borrower shall
furnish, on a monthly basis, each of the items listed in the immediately
preceding sentence for each Individual Property (collectively, the
"PRE-SECONDARY MARKET TRANSACTION FINANCIALS") within 20 days after the end of
that month. Within 90 days following the end of each calendar year during the
applicable Fiscal Year, Borrower shall furnish the following: (i) audited
statements of the financial affairs and condition of Malan Realty Investors, Inc
including a balance sheet and a statement of profit and loss in such detail as
Lender may request, and setting forth the financial
34
<PAGE> 39
condition and the income and expenses for each Individual Property for the
immediately preceding Fiscal Year, and the same information on a consolidated
basis, audited by a certified public accountant approved by Lender; (ii)
together with consolidating entries for Borrower and each of the Individual
Properties, including consolidating balance sheet and profit and loss
information in such detail as Lender may request, and setting forth the
financial condition and the income and expenses for each Individual Property for
the immediately preceding Fiscal Year. Borrower's consolidating annual financial
statements for each Individual Property shall include (i) a list of the tenants,
if any, occupying more than twenty (20%) percent of the total floor area of the
Improvements, and (ii) a breakdown showing the year in which each Lease then in
effect expires and the percentage of total floor area of the Improvements and
the percentage of base rent with respect to which Leases shall expire in each
such year, each such percentage to be expressed on both a per year and a
cumulative basis. The annual financial statements shall be accompanied by an
unqualified certificate of a chief financial officer or similar party of both
Malan Realty Investors, Inc. and Borrower, acceptable to Lender, stating that
each such annual financial statement is true, complete and correct and fairly
presents the financial condition of Borrower and each Individual Property being
reported upon, or Guarantor, as applicable. At any time and from time-to-time
Borrower shall deliver to Lender or its agents such other financial data as
Lender or its agents shall reasonably request with respect to the ownership,
maintenance, use and operation of the Property.
B. FAILURE TO PROVIDE REQUIRED RECORDS. In the event that Borrower fails
to provide to Lender or its designee any of the financial statements,
certificates, reports or information (the "REQUIRED RECORDS") required by this
Paragraph 8.F within 30 days after the date upon which that Required Record is
due, Borrower shall pay to Lender, at Lender's option and in its sole
discretion, an amount equal to $10,000 for each Required Record that is not
delivered, provided that, Lender has given at least 15 days prior written notice
to Borrower of that failure by Borrower to timely submit the applicable Required
Record. Notwithstanding the foregoing, in the event that Borrower fails to
provide Lender with Pre-Secondary Market Transaction Financials on or before the
date they are due, Borrower shall pay to Lender, at Lender's option and in its
sole discretion, an amount equal to $10,000 for each Pre-Secondary Market
Transaction Financial that is not delivered.
C. ANNUAL BUDGETS. In connection with the "hyperamortization" provisions
of Paragraph 4.E, Borrower shall prepare and deliver to Lender those Annual
Budgets as, when and in the manner required under Paragraph 4.D.
D. PAPER AND ELECTRONIC REPORTING. Any reports, statements or other
information required to be delivered under this Agreement shall be delivered (1)
in paper form and (2) if prepared by Borrower or its Affiliates, on a diskette
or, if agreed to by the Lender, transmitted in electronic form. Unless otherwise
agreed to by the Lender, electronic delivery shall be prepared using Microsoft
Windows-based programs and files (in formats specified by Lender).
11. INSURANCE
A. GENERAL OBLIGATION. Borrower, at its sole cost and expense, for the
mutual benefit of Borrower and Lender, shall obtain and maintain during the
entire term of the Loan (the "TERM") policies of insurance applicable to each
Individual Property against loss or damage by fire, lightning, wind and such
other perils as are included in a standard "all-risk" or "special causes of
loss" form, and against loss or damage by all other risks and hazards covered by
a standard extended coverage insurance policy including, without limitation,
riot and civil commotion, vandalism, malicious mischief, burglary and theft.
Such insurance shall be in an amount equal to the greater of (i), the then full
replacement cost of the Improvements and Equipment, without deduction for
physical depreciation, (ii) the outstanding principal balance of the Loan, and
(iii) such amount that the insurer would not deem Borrower to be a co-insurer
under those policies. The policies of insurance carried in accordance with this
paragraph shall be paid annually in advance and shall contain a "Replacement
Cost Endorsement" with a waiver of depreciation and an "Agreed Amount
Endorsement". The policies shall have a deductible no greater than $25,000
unless agreed to by Lender.
B. OTHER COVERAGES. Borrower, at its sole cost and expense, for the
mutual benefit of Borrower and Lender, shall also obtain and maintain during the
Term the following policies of insurance:
35
<PAGE> 40
(1) Flood insurance if any part of any Individual Property is located in
an area identified by the Federal Emergency Management Agency as an
area having special flood hazards and in which flood insurance has
been made available under the National Flood Insurance Program in an
amount equal to the lesser of the Release Amount for that Individual
Property or the insurable Improvements and Equipment under that
program, whichever is less.
(2) Earthquake insurance if any part of any Individual Property is
identified by the insurance industry or other experts (e.g., a
professional engineer selected by and acceptable to Lender, survey
and/or available earthquake maps) as located within an area that is a
high probable earthquake area, in an amount equal to the lesser of the
Release Amount for that Individual Property or the maximum amount
permitted by law.
(3) Comprehensive General Liability or Commercial General Liability
insurance, including broad form property damage, blanket contractual,
personal injuries (including death resulting therefrom) and a liquor
liability endorsement if liquor is sold on any Individual Property
containing minimum limits per occurrence of $1,000,000 and $2,000,000
in the aggregate for any policy year. In addition, at least
$10,000,000 excess and/or umbrella liability insurance shall be
obtained and maintained for any and all claims, including all legal
liability imposed upon Borrower and all court costs and attorneys'
fees incurred in connection with the ownership, operation and
maintenance of the Properties.
(4) Rental loss and/or business interruption insurance in an amount equal
to the greater of (A) estimated gross revenues for eighteen (18)
months from the operations of each of the Individual Properties or (B)
the projected operating expenses (including debt service) for eighteen
(18) months for the maintenance and operation of each of the
Individual Properties. The amount of that insurance shall be increased
from time-to-time during the Term as and when new Leases and renewal
Leases are entered into and the Rents increase or the annual estimate
of (or the actual) gross revenue, as may be applicable, increases.
(5) Worker's compensation insurance with respect to any employees of
Borrower, as required by any governmental authority or legal
requirement.
(6) During any period of repair or restoration, builder's "all risk"
insurance in an amount equal to not less than the full insurable value
of the applicable Individual Property against those risks (including,
without limitation, fire and extended coverage and collapse of the
Improvements to agreed limits) as Lender may request, in form and
substance acceptable to Lender.
(7) If any portion of the Improvements are or become non-conforming under
the applicable zoning laws and/or ordinances, ordinance or law
coverage to compensate for the cost of demolition and the increased
cost of construction.
(8) Sinkhole and mine subsidence insurance shall be obtained and
maintained, in an amount up to the full Release Amount for an affected
Individual Property as determined by Lender in the exercise of its
sole discretion, if in the opinion of a professional engineer,
selected by and acceptable to Lender, there is a foreseeable risk of
loss due to the perils customarily insured by that coverage.
(9) Such other insurance as may from time-to-time be reasonably required
by Lender in order to protect its interests.
C. POLICY REQUIREMENTS. All policies of insurance (the "POLICIES")
required pursuant to this paragraph: (i) shall be issued by companies approved
by Lender and licensed to do business in the state where the Property is
located, with a rating of "A" or better for claims paying ability assigned by
Moody's Investors Services, Inc. and Standard & Poor's Ratings Services, a
division of McGraw-Hill Companies, Inc., or a general policy rating of "A" or
better and a financial class of "VIII" or better assigned by A.M. Best Company,
Inc.; (ii) shall name Lender and its successors and/or assigns as their
interests may appear as the Lender; (iii) shall contain a Non-Contributory
Standard Lender Clause and a Lender's Loss
36
<PAGE> 41
Payable Endorsement, or their equivalents, naming Lender as the person to which
all payments made by that insurance company shall be paid; (iv) shall contain a
waiver of subrogation against Lender; (v) shall be maintained throughout the
Term without cost to Lender; (vi) shall be assigned and certified copies
delivered to Lender; (vii) shall contain such provisions as Lender deems
reasonably necessary or desirable to protect its interest including, without
limitation, endorsements providing that neither Borrower, Lender nor any other
party shall be a co-insurer under those Policies and that Lender shall receive
at least 30 days prior written notice of any modification, reduction or
cancellation; and (viii) shall be satisfactory in form and substance to Lender
and shall be approved by Lender as to amounts, form, risk coverage, deductibles,
loss payees and insureds. Borrower shall pay the premiums for those Policies
(the "INSURANCE PREMIUMS") as the same become due and payable and shall furnish
to Lender evidence of the renewal of each of the Policies with receipts for the
payment of the Insurance Premiums or other evidence of that payment reasonably
satisfactory to Lender (provided, however, that Borrower is not required to
furnish that evidence of payment to Lender in the event that such Insurance
Premiums have been paid by Lender pursuant to Paragraph 13.A hereof). If
Borrower does not furnish that evidence and receipts at least 30 days prior to
the expiration of any expiring Policy, then Lender may procure, but shall not be
obligated to procure, that insurance and pay the Insurance Premiums therefor,
and Borrower agrees to reimburse Lender for the cost of those Insurance Premiums
promptly on demand. Within 30 days after request by Lender, Borrower shall
obtain such increases in the amounts of coverage required hereunder as may be
reasonably requested by Lender, taking into consideration changes in the value
of money over time, changes in liability laws, changes in prudent customs and
practices, and the like.
12. CASUALTY, CONDEMNATION AND RESTORATION
A. CASUALTY. If any of the Individual Properties shall be damaged or
destroyed, in whole or in part, by fire or other casualty (a "CASUALTY"),
Borrower shall give prompt notice thereof to Lender. Following the occurrence of
a Casualty, Borrower, regardless of whether insurance proceeds are available,
shall promptly proceed to restore, repair, replace or rebuild the same to be of
at least equal value and of substantially the same character as prior to that
damage or destruction ("RESTORATION"), all to be effected in accordance with
applicable law, except in instances where Lender has failed or elected not to
disburse the Net Proceeds of insurance received by Lender for the costs of
Casualty Restoration (provided that the foregoing exception shall not apply if
[i] the failure to disburse is attributable to Borrower's failure to comply with
the conditions set forth in Clauses 12.C(3)(a)(i), 12.C(3)(a)(v), or
12.C(3)(a)(ix)) or in Subparagraph 12.C(3)(b) or any other conditions set forth
in Subparagraph 12.C(2) which Borrower has the practical ability to satisfy).
The expenses incurred by Lender in the adjustment and collection of insurance
proceeds shall become part of the Debt and be secured hereby and shall be
reimbursed by Borrower to Lender upon demand.
B. CONDEMNATION. Borrower shall promptly give Lender written notice of
the actual or threatened commencement of any condemnation or eminent domain
proceeding with respect to any of the Properties (a "CONDEMNATION") and shall
deliver to Lender copies of any and all papers served in connection with that
Condemnation. Following the occurrence of a Condemnation, Borrower, regardless
of whether an Award (hereinafter defined) is available, shall promptly proceed
to restore, repair, replace or rebuild the same to the extent practicable to be
of at least equal value and of substantially the same character as prior to that
Condemnation (also a "Restoration"), all to be effected in accordance with
applicable law, except in instances where Lender has failed or elecsed not to
disburse the Net Proceeds received by Lender for the costs of Condemnation
Restoration (provided that the foregoing exception shall not apply if [i] the
failure to disburse is attributable to Borrower's failure to comply with the
conditions set forth in Clauses 12.C(3)(a)(i), 12.C(3)(a)(v), or 12.C(3)(a)(ix))
or in Subparagraph 12.C(3)(b) or any other conditions set forth in Subparagraph
12.C(2) which Borrower has the practical ability to satisfy).
(1) Lender is irrevocably appointed as Borrower's attorney-in-fact,
coupled with an interest, with exclusive power to collect, receive and
retain any award or payment ("AWARD") for any taking accomplished
through a Condemnation (a "TAKING") and to make any compromise or
settlement in connection with that Condemnation, subject to the
provisions of the Mortgage applicable to that Individual Property.
Notwithstanding any Taking by any public or quasi-public authority
(including, without limitation, any transfer made in lieu of or in
anticipation of such a Taking), Borrower shall continue to pay the
Debt at the time and in the manner provided for in the Note, in the
Mortgage applicable to
37
<PAGE> 42
that Individual Property and the other Loan Documents and the Debt
shall not be reduced unless and until any Award shall have been
actually received and applied by Lender to expenses of collecting the
Award and to discharge of the Debt. Lender shall not be limited to the
interest paid on the Award by the condemning authority but shall be
entitled to receive out of the Award interest at the rate or rates
provided in the Note. Borrower shall cause any Award that is payable to
Borrower to be paid directly to Lender.
(2) If the applicable Individual Property is sold, through foreclosure or
otherwise, prior to the receipt by Lender of that Award, Lender shall
have the right, whether or not a deficiency judgment on the Note shall
be recoverable or shall have been sought, recovered or denied, to
receive all or a portion of that Award sufficient to pay the Debt.
C. RESTORATION. The following provisions shall apply in connection with the
Restoration of the Property in connection with any Casualty or Taking affecting
any of the Properties:
(1) Net Proceeds. The term "NET PROCEEDS" for purposes of this Paragraph
12.C means: (i) the net amount of all insurance proceeds payable as the
result of a Casualty, after deduction of reasonable costs and expenses
(including, but not limited to, reasonable counsel fees), if any, in
collecting same ("INSURANCE PROCEEDS"), or (ii) the net amount of all
Awards with respect to a Taking, after deduction of reasonable costs
and expenses (including, but not limited to, reasonable counsel fees),
if any, in collecting same ("CONDEMNATION PROCEEDS"), whichever the
case may be.
(2) Borrower's Settlement, Adjustment Restoration. In the event both the
Net Proceeds and the cost of completing the Restoration shall be less
than ten percent (10%) of the original Release Amount applicable to
that Individual Property, Borrower may settle and adjust any claim
without the consent of Lender and agree with the insurance company or
companies on the amount to be paid upon the loss; provided that such
adjustment is carried out in a competent and timely manner and all of
the conditions set forth in Subparagraph 12.C(3)(a) are met and
Borrower delivers to Lender a written undertaking to expeditiously
commence and to satisfactorily complete with due diligence the
Restoration in accordance with the terms of the Mortgage applicable to
that Individual Property. In that case, Borrower is authorized to
collect and receipt for any such insurance proceeds.
(3) Lender's Settlement and Adjustment and Conditions of Application to
Restoration. In the event either the Net Proceeds or the cost of
completing the Restoration shall be equal to or greater than ten
percent (10%) of the original Release Amount applicable to that
Individual Property, then and in that event, Lender may settle and
adjust any claim without the consent of Borrower and agree with the
insurance company or companies on the amount to be paid on the loss and
the proceeds of any such Policy shall be due and payable solely to
Lender, and shall be held in escrow by Lender in accordance with the
provisions of this Subparagraph 12.C(3).
(a) The Net Proceeds shall be made available to Borrower for the
Restoration provided that each of the following conditions are
met: (i) no Event of Default shall have occurred and be continuing
under the Note, the Mortgage applicable to that Individual
Property or any of the other Loan Documents; (ii) a sufficient
amount of Net Proceeds exist (together with other funds provided
to Lender's reasonable satisfaction by Borrower from other
sources) to permit the Restoration to be completed as provided
below; (iii) (A) in the event the Net Proceeds are Insurance
Proceeds, less than fifty percent (50%) of the total floor area of
the Improvements has been damaged, destroyed, or rendered unusable
as a result of that Casualty or (B) in the event the Net Proceeds
are Condemnation Proceeds, less than ten (10%) of the land
constituting the affected Individual Property is Taken, and that
land is located along the perimeter or periphery of that
Individual Property, and some portion of the Improvements is
located in that land; (iv) Leases demising in the aggregate a
percentage amount equal to or greater than fifty percent (50%)
(with respect to Casualties) or ten
38
<PAGE> 43
percent (10%) (with respect to Condemnation) of the total net
rentable space in the affected Individual Property which has been
demised under executed and delivered Leases in effect as of the
date of the occurrence of that Casualty, as the case may be, shall
remain in full force and effect during and after the completion of
the Restoration and Borrower shall have furnished to Lender
evidence satisfactory to Lender that shall continue to lease their
premises at that Individual Property notwithstanding the
occurrence of any such Casualty or Taking, whichever the case may
be, and will make all necessary repairs and restorations thereto
at their sole cost and expense; (v) Borrower shall have commenced
the Restoration as soon as reasonably practicable (but in no event
later than 90 days after that Casualty or Taking, whichever the
case may be, occurs) and shall diligently pursue the Restoration
to satisfactory completion; (vi) Lender shall be satisfied that
any operating deficits, including all scheduled payments of
principal and interest under the Note at the Applicable Interest
Rate (as defined in the Note), which will be incurred with respect
to the affected Individual Property as a result of the occurrence
of any such Casualty or Taking, whichever the case may be, will be
covered out of (1) the Net Proceeds, (2) the insurance coverage
referred to in the Rental Loss Insurance required under the
Mortgage encumbering that Individual Property, if applicable, or
(3) by other funds of Borrower; (vii) Lender shall be satisfied
that for the twelve (12) month period succeeding the completion of
the Restoration, the ratio of sustainable net operating income for
the Property (after deduction for applicable reserves) to debt
service payable under the Note (based on the original Release
Amount) shall be at least 1.30 to 1.0; (viii) Lender shall be
reasonably satisfied that the Restoration will be completed on or
before the earliest to occur of (1) twelve (12) months prior to
the Optional Prepayment Date, (2) twelve (12) months after the
occurrence of that Casualty or Taking, whichever the case may be,
(3) the earliest date required for completion under the terms of
any Leases that are required in accordance with the provisions of
this Subparagraph 12.C(3) to remain in effect subsequent to the
occurrence of such Casualty or Taking, whichever the case may be,
and the completion of the Restoration or (4) such time as may be
required under any applicable zoning laws, ordinances, rules or
regulations in order to repair and restore the affected Individual
Property to the condition it was in immediately prior to that
Casualty or to as nearly as possible the condition it was in
immediately prior to that Taking, as applicable; (ix) the
Individual Property and the use thereof after the Restoration will
be in compliance with and permitted under all applicable zoning
laws, ordinances, rules and regulations; (x) the Restoration shall
be done and completed by Borrower in an expeditious and diligent
fashion and in compliance with all applicable laws, rules and
regulations; and (xi) the Casualty or Taking, as applicable, does
not result in the loss of access to the affected Individual
Property or the related Improvements.
(b) The Net Proceeds shall be held by Lender and, until disbursed in
accordance with the provisions of this Subparagraph 12.C(3), shall
constitute additional security for the Debt. The Net Proceeds
shall be disbursed by Lender to, or as directed by, Borrower from
time-to-time during the course of the Restoration, upon receipt of
evidence satisfactory to Lender that (i) all materials installed
and work and labor performed (except to the extent that they are
to be paid for out of the requested disbursement) in connection
with the Restoration have been paid for in full, and (ii) there
exist no notices of pendency, stop orders, mechanic's or
materialman's liens or notices of intention to file same, or any
other liens or encumbrances of any nature whatsoever on the
affected Individual Property arising out of the Restoration which
have not either been fully bonded to the satisfaction of Lender
and discharged of record or in the alternative fully insured
39
<PAGE> 44
to the satisfaction of Lender by the title company insuring the
lien of the Mortgage applicable to that Individual Property.
(c) All plans and specifications required in connection with the
Restoration shall be subject to prior review and approval in all
respects by Lender and by an independent consulting engineer
selected by Lender (the "CASUALTY CONSULTANT"), which approval
shall not be unreasonably withheld or delayed. Lender shall have
the use of the plans and specifications and all permits, licenses
and approvals required or obtained in connection with the
Restoration. The identity of the contractors, subcontractors and
materialmen engaged in the Restoration, as well as the contracts
under which they have been engaged, shall be subject to prior
review and acceptance by Lender and the Casualty Consultant, which
approval shall not be unreasonably withheld or delayed. All costs
and expenses incurred by Lender in connection with making the Net
Proceeds available for the Restoration including, without
limitation, reasonable counsel fees and disbursements and the
Casualty Consultant's fees, shall be paid by Borrower.
(d) In no event shall Lender be obligated to make disbursements of the
Net Proceeds in excess of an amount equal to the costs actually
incurred from time-to-time for work in place as part of the
Restoration, as certified by the Casualty Consultant, minus the
Casualty Retainage. The term "CASUALTY RETAINAGE" as used in this
Subparagraph 12.C(3) means an amount equal to 10% of the costs
actually incurred for work in place as part of the Restoration, as
certified by the Casualty Consultant, until the Restoration has
been completed. The Casualty Retainage shall in no event, and
notwithstanding anything to the contrary set forth above in this
Subparagraph 12.C(3), be less than the amount actually held back
by Borrower from contractors, subcontractors and materialmen
engaged in the Restoration. The Casualty Retainage shall not be
released until the Casualty Consultant certifies to Lender that
the Restoration has been completed in accordance with the
provisions of this Subparagraph 12.C(3) and that all approvals
necessary for the re-occupancy and use of the affected Individual
Property have been obtained from all appropriate governmental and
quasi-governmental authorities, and Lender receives evidence
reasonably satisfactory to Lender that the costs of the
Restoration have been paid in full or will be paid in full out of
the Casualty Retainage, provided, however, that Lender will
release the portion of the Casualty Retainage being held with
respect to any contractor, subcontractor or materialman engaged in
the Restoration as of the date upon which the Casualty Consultant
certifies to Lender that the contractor, subcontractor or
materialman has satisfactorily completed all work and has supplied
all materials in accordance with the provisions of the
contractor's, subcontractor's or materialman's contract, and the
contractor, subcontractor or materialman delivers the lien waivers
and evidence of payment in full of all sums due to the contractor,
subcontractor or materialman as may be reasonably requested by
Lender or by the title company insuring the lien of the Mortgage
applicable to that Individual Property. If required by Lender, the
release of any such portion of the Casualty Retainage shall be
approved by the surety company, if any, which has issued a payment
or performance bond with respect to the contractor, subcontractor
or materialman.
(e) Lender shall not be obligated to make disbursements of the Net
Proceeds more frequently than once every calendar month.
(f) If at any time the Net Proceeds or the undisbursed balance thereof
shall not, in the reasonable opinion of Lender, be sufficient to
pay in full the balance of the costs which are estimated by the
Casualty Consultant to be incurred in connection with the
completion of the Restoration, Borrower shall deposit the
deficiency (the "NET PROCEEDS DEFICIENCY") with Lender before any
further
40
<PAGE> 45
disbursement of the Net Proceeds shall be made. The Net Proceeds
Deficiency deposited with Lender shall be held by Lender and shall
be disbursed for costs actually incurred in connection with the
Restoration on the same conditions applicable to the disbursement
of the Net Proceeds, and until so disbursed pursuant to this
Subparagraph 12.C(3) shall constitute additional security for the
Debt. With respect to Restorations following a Casualty in which
the Improvements are restored to substantially the same condition
as they existed prior to the Casualty, the excess, if any, of the
Net Proceeds and the remaining balance, if any, of the Net
Proceeds Deficiency deposited with Lender after the Casualty
Consultant certifies to Lender that the Restoration has been
completed in accordance with the provisions of this Subparagraph
12.C(3), and the receipt by Lender of evidence reasonably
satisfactory to Lender that all costs incurred in connection with
the Restoration have been paid in full, shall be remitted by
Lender to Borrower, provided no Event of Default shall have
occurred and shall be continuing under the Note, the Mortgage
applicable to that Individual Property or any of the other Loan
Documents.
(4) Application to Debt. All Net Proceeds not required (i) to be made
available for the Restoration or (ii) to be returned to Borrower as
excess Net Proceeds pursuant to Subparagraph 12.C(3)(f) may be retained
and applied by Lender toward the payment of the Debt whether or not
then due and payable in that order, priority and proportions as Lender
in its discretion shall deem proper or, at the discretion of Lender,
the same may be paid, either in whole or in part, to Borrower for those
purposes as Lender shall designate, in its discretion. Provided no
Event of Default, or an event with notice and/or the passage of time
would constitute an Event of Default, exists, in the event of any
prepayment of the Debt pursuant to the terms of Paragraph 2.E hereof,
no Yield Maintenance Premium shall be due in connection therewith, but
Borrower shall be responsible for all other amounts due under the Note,
the Mortgage applicable to the affected Individual Property and the
other Loan Documents. If such an Event of Default has occurred then
Borrower shall pay to Lender an additional amount equal to the Yield
Maintenance Premium, if any, that would be required under Paragraph 2.F
hereof if a Defeasance Deposit was to be made by Borrower. If Lender
shall receive and retain Net Proceeds, the Release Amount applicable to
the lien of the Mortgage applicable to that Individual Property shall
be reduced only by the amount thereof received and retained by Lender
and actually applied by Lender in reduction of the Debt. Any such
application to the Debt shall be applied to those payments of principal
and interest last due under the Note but shall not postpone or reduce
any payments otherwise required pursuant to the Note other than those
last due payments.
13. ESCROWS, RESERVES AND IMPOUNDS
A. TAX AND INSURANCE ESCROW FUND. Borrower shall pay to Lender on the
eleventh day of each calendar month (a) one-twelfth of the Taxes that Lender
estimates will be payable during the next ensuing twelve (12) months with
respect to each of the Individual Properties in order to accumulate with Lender
sufficient funds to pay those Taxes at least 30 days prior to their respective
due dates, and (b) one-twelfth of the Insurance Premiums that Lender estimates
will be payable for the renewal of the coverage afforded by the Policies upon
the expiration thereof in order to accumulate with Lender sufficient funds to
pay all such Insurance Premiums at least 30 days prior to the expiration of the
Policies (those amounts in (a) and (b) above hereinafter called the "TAX AND
INSURANCE ESCROW FUND"). The Tax and Insurance Escrow Fund and the payments of
interest or principal or both, payable pursuant to the Note, shall be added
together and shall be paid as an aggregate sum by Borrower to Lender. Provided
that there shall not exist any Event of Default, Lender will apply the Tax and
Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be
made by Borrower pursuant to this Agreement. In making any payment relating to
the Tax and Insurance Escrow Fund, Lender may do so according to any bill,
statement or estimate procured from the appropriate public office (with respect
to Taxes) or insurer or agent (with respect to Insurance Premiums), without
inquiry into the accuracy of such bill, statement or estimate or into the
validity of any tax, assessment, sale, forfeiture, tax lien or title or
41
<PAGE> 46
claim thereof. If the amount of the Tax and Insurance Escrow Fund shall exceed
the amounts due for Taxes and Insurance Premiums pursuant to this Agreement,
Lender shall, in its sole discretion, return any excess to Borrower or credit
that excess against future payments to be made to the Tax and Insurance Escrow
Fund. In allocating that excess, Lender may deal with the person shown on the
records of Lender to be the owner of each Individual Property affected thereby.
If at any time Lender determines that the Tax and Insurance Escrow Fund is not
or will not be sufficient to pay the items set forth in (a) and (b) above,
Lender shall notify Borrower of that determination and Borrower shall increase
its monthly payments to Lender by the amount that Lender estimates is sufficient
to make up the deficiency at least 30 days prior to delinquency of the Taxes
and/or expiration of the Policies, as the case may be. If Lender so elects at
any time, Borrower shall provide, at Borrower's expense, a tax service contract
for the Term issued by a tax reporting agency acceptable to Lender. If Lender
does not so elect, Borrower shall reimburse Lender for the cost of making annual
tax searches throughout the Term.
(1) Conditional Deposit Arrangements. Notwithstanding anything to the
contrary contained in this Paragraph 13.A, Borrower shall not be
obligated to escrow monthly for Insurance Premiums so long as (i)
Borrower deposits and maintains in the Tax and Insurance Escrow Fund as
security for payment of Insurance Premiums, an amount at all times
equal to six months of those Insurance Premiums (the "PREMIUM
DEPOSIT"), (ii) Borrower pays all Insurance Premiums for the Policies
as they become due and payable and shall furnish to Lender evidence of
the renewal of each of the Policies with receipts for the payment of
Insurance Premiums or other evidence of that payment reasonably
satisfactory to Lender at least 30 days prior to the expiration of any
Policy, (iii) Borrower provides Lender with written notice of any
increases in the Insurance Premiums 30 days prior to the expiration of
any Policy, (iv) if the payment of any Insurance Premium is financed by
Borrower, no default has occurred under that financing and the finance
company providing that credit has agreed in writing to give Lender 30
days prior written notice of a default by Borrower in the payment of
that credit and shall acknowledge Lender's right to make those payments
and cure that default by Borrower, and (v) Borrower otherwise complies
with the provisions contained in Paragraph 11 of this Agreement. The
amount of the Premium Deposit shall be increased annually in an amount
equal to the greater of (A) the percentage increase in CPI for the
preceding twelve (12) calendar month period, and (B) the amount Lender
deems is necessary in its reasonable discretion based on any increase
in the amount of the Insurance Premiums.
B. REPLACEMENT ESCROW FUND. Borrower shall pay to Lender on the eleventh
day of each calendar month an amount equal to one-twelfth of the annual amount
listed for each Individual Property on Schedule 13.B, being the amount estimated
by Lender in its sole discretion to be due for replacements and repairs required
to be made to each Individual Property during each calendar (the "REPLACEMENT
ESCROW FUND"). Beginning January 11, 1999, and every January 11th thereafter for
the term of the Loan, Borrower shall pay Lender an amount equal to one twelfth
of 102.5% of the previously required annual Replacement Escrow Fund amount for
each Individual Property on each monthly payment date for one year (or until the
Loan is defeased in full with respect to each such Individual Property pursuant
to Paragraph 2.F hereof). Notwithstanding the foregoing, Lender may reassess its
estimate of the amount necessary for the Replacement Escrow Fund for any one or
more or all of the Individual Properties from time-to-time and in its reasonable
discretion, and may adjust the monthly amounts required to be deposited into the
Replacement Escrow Fund after giving 30 days notice to Borrower. If an
adjustment is made, Borrower shall be required to pay the adjusted monthly
amount until January 11th following one year from the date the first adjusted
monthly payment is made. Commencing at that time, and every January 11th
thereafter for the term of the Loan, Borrower shall pay Lender an amount equal
to one twelfth of 102.5% of the previously required annual Replacement Escrow
Fund amount on each monthly payment date for one year. Provided that no Event of
Default shall exist and remain uncured, Lender shall make disbursements from the
Replacement Escrow Fund as requested, in writing, by Borrower, and approved by
Lender in its sole discretion, on a one-time-each monthly basis with respect to
all Properties in increments of no less than $1,000.00 upon delivery by Borrower
of copies of paid invoices (or with respect to requests in excess of $10,000.00
(regardless of whether applicable to one or more Individual Properties), unpaid
invoices) for the amounts requested, a certification from Borrower stating: (a)
the nature and type of the related replacement or repair, (b) that the related
replacement or repair has been
42
<PAGE> 47
completed in a good and workmanlike manner and (c) that the related replacement
or repair has been paid for in full (or, with respect to requests in excess of
$10,000, will be paid for in full from the requested disbursement) and, if
required by Lender, lien waivers and releases from all parties furnishing
materials and/or services in connection with the requested payment. Any
disbursement by Lender hereunder for a capital item in excess of $10,000.00 and
not already paid for by Borrower, shall be made by joint check, payable to
Borrower and the applicable contractor, supplier, materialman, mechanic,
subcontractor or other party to whom payment is due in connection with that
capital item. Lender may require an inspection of the affected Individual
Property at Borrower's expense prior to making a disbursement in order to verify
completion of replacements and repairs for which reimbursement is sought.
C. ROLLOVER ESCROW FUND. Upon the occurrence of a "TRIGGERING EVENT" (i.e.,
either a Go-Dark or Termination Event, as defined below), Borrower shall deposit
with Lender those sums provided in this Paragraph 13.C, as the "ROLLOVER ESCROW
FUND", to be held by Lender for tenant improvement and leasing commission
obligations incurred following the date of this Agreement with respect to each
Individual Property.
(1) Occurrence of Go-Dark and Termination Events. Borrower shall provide
Lender with immediate written notice (including complete copies of all
correspondence and any other related documentation, both then and on a
continuing basis thereafter) of the occurrence of any facts or
circumstances known to Borrower that, with the passage of time, the
giving of notice, or both, or the occurrence of a "companion
occurrence" (i.e., the second to occur of such an event with respect to
Key In-Line Tenants, as discussed below) would constitute either (i) a
Go-Dark Event or (ii) a Termination Event with respect to the any
Anchor Tenant or Key In-Line Tenant (each a "TRIGGERING EVENT").
(a) Anchor Tenant Go-Dark Event. A "GO-DARK EVENT" shall be deemed to
occur if any Anchor Tenant shall cease conducting business from
100% of its Anchor Premises (i.e., if any portion of those Anchor
Premises shall no longer be used by that Anchor Tenant for the
conduct of its business), and those Anchor Premises are not
re-occupied by a Replacement Anchor as provided below.
(b) Key In-Line Tenant Go-Dark Event. A Go-Dark Event shall be deemed
to occur with respect to one or more Key In-Line Tenants if any
one or more of those Key In-Line Tenants shall cease conducting
business as permitted under its Lease from 100% of two separate
leased premises upon one or more Individual Properties at any one
time and those premises are not re-occupied by a Replacement
Tenant as provided below (e.g., if such a cessation shall exist
with respect to the same or different Key In-Line Tenants at two
or more such Individual Properties at any one time, or with
respect to two different Key In-Line Tenants at any one Individual
Property).
(c) Anchor Tenant Termination Event. A "TERMINATION EVENT" shall be
deemed to occur if any Anchor Tenant shall terminate its lease of,
or sell or assign to a third party, its Anchor Premises or the
right to occupy the same.
(d) Key In-Line Tenant Termination Event. A Termination Event shall be
deemed to occur with respect to Key In-Line Tenants if two or more
Leases for premises of one or more Key In-Line Tenants upon any
one or more of the Individual Properties shall be terminated and
not re-leased to a Replacement Tenant (e.g., if such a termination
shall have occurred and continues to exist with respect to the
same or different Key In-Line Tenants at two or more such
Individual Properties at any one time, or with respect to two
different Key In-Line Tenants at any one Individual Property).
(e) Replacement of Key In-Line Tenants. Neither a Go-Dark Event nor a
Termination Event regarding a Key In-Line Tenant (or its
corresponding leased premises) shall be deemed to exist with
respect to an applicable Individual Property once one or more
Replacement Tenants shall be in Economic
43
<PAGE> 48
Occupancy of the entire premises affected by that particular
Go-Dark or Termination Event.
(f) Replacement Anchors. Neither a Go-Dark Event nor a Termination
Event regarding an Anchor Tenant (or its corresponding Anchor
Premises) shall be deemed to exist with respect to an applicable
Individual Property once one or more Replacement Anchors shall be
in Operating Occupancy of the entire Anchor Premises affected by
that particular Go-Dark or Termination Event.
(2) Initial Funding. Upon the Occurrence of a Triggering Event and
thereafter until the obligation to do so is terminated under the
provisions of this Paragraph 13.C, Borrower shall pay to and deposit
with Lender to be held by Lender as and in the Rollover Escrow Fund a
sum equal to the product of the entire square footage of all Properties
subject to the Mortgages at that time, multiplied by $1.00/square foot
(the "REQUIRED ROLLOVER ACCOUNT BALANCE"). In the event of any
distributions from the Rollover Escrow Fund that reduce it below the
Required Rollover Account Balance, the deficiency shall be replenished
by monthly deposits as provided below, until the Required Rollover
Account Balance has again been re-established.
(a) Disbursements. Lender shall make disbursements from the Rollover
Escrow Fund for expenses reasonably incurred by Borrower for new
Leases entered into by Borrower, in accordance with the provisions
of Paragraph 9, with respect to (i) any portion of the premises on
any Individual Property that are specifically subject to a then
existing Go-Dark or Termination Event (including the installation
of a Replacement Tenant) or any such premises that are re-leased
while the Rollover Escrow Fund shall be required under this
Paragraph 13.C. All expenses shall be approved by Lender in its
sole discretion. Provided that no Event of Default shall exist and
remain uncured, Lender shall make disbursements as requested by
Borrower on a one-time-each monthly basis in increments of no less
than $1,000.00 upon delivery by Borrower of copies of paid
invoices, or with respect to requests in excess of $10,000
(regardless of whether applicable to one or more Individual
Properties) unpaid invoices, for the amounts requested for tenant
improvements and leasing commissions, the newly executed Lease,
extension, renewal, or modification, with terms commensurate with
the expired Lease, a certification for tenant improvement
disbursements from Borrower stating (a) the nature and type of the
related improvement, (b) that the related improvement has been
completed in a good and workmanlike manner and (c) that the
related improvement has been paid in full (or, with respect to
requests in excess of $10,000, will be paid for in full from the
requested disbursement) or a certification for leasing commission
disbursements stating that the leasing commission has been paid in
full (or, with respect to requests in excess of $10,000, will be
paid for in full from the requested disbursement) and, if required
by Lender, lien waivers and releases from all parties furnishing
materials and/or services in connection with the requested
payment. Any disbursement by Lender hereunder in excess of $10,000
and not already paid for by Borrower, shall be made by joint
check, payable to Borrower and the applicable contractor,
supplier, materialman, mechanic, subcontractor, broker or other
party to whom payment is due in connection with that disbursement.
Lender may require an inspection of the affected Individual
Property at Borrower's expense prior to making a disbursement in
order to verify completion of improvements for which reimbursement
is sought.
(b) Replenishment of Rollover Account. To the extent that any
disbursement shall be made from the Rollover Escrow Fund that
reduces it below the Required Rollover Account Balance, beginning
with the next regular installment of principal and interest due on
the Loan, Borrower shall pay to Lender on the eleventh day of each
calendar month one-twelfth of the amount of each such draw from
the
44
<PAGE> 49
Rollover Escrow Fund (to the extent that it creates that
deficiency), which shall be deposited with and held by Lender in
the Rollover Escrow Fund.
(c) Additional Deposits. During any period of time Rollover Escrow
Fund shall be required under this Paragraph 13.C, Borrower shall
pay to Lender for deposit in and as part of the Rollover Escrow
Fund all funds received by Borrower from tenants in connection
with the cancellation of any Leases upon any of the Properties,
including, but not limited to, any cancellation fees, penalties,
tenant improvements, leasing commissions or other charges,
notwithstanding the fact that those deposits may cause the
Required Rollover Account Balance to be exceeded.
(d) Termination of Rollover Escrow Fund. The Rollover Escrow Fund
shall be constantly maintained after a Triggering Event occurs and
until: (i) no such Triggering Event exists with respect to any of
the Properties (but shall be reinstituted at any time thereafter
when a Triggering Event shall again occur, e.g., successively when
an Go-Dark Event shall again exist with respect to any Anchor
Tenant, etc.); AND (ii) the Properties then subject to the
Mortgages, taken as a whole, have achieved a Debt Service Coverage
Ratio equal to the lesser of the following on a trailing 12 month
basis (i.e., for the 12 completed calendar months immediately
preceding the measurement):
(i) the Debt Service Coverage Ratio of the Properties for the 12
months immediately preceding the Triggering Event; or
(ii) a Debt Service Coverage Ratio of 1.75:1.0.
Upon termination of the Rollover Escrow Fund by Lender, and
provided that no Event of Default shall exist, Lender shall refund
to Borrower any remaining balance of funds in that account.
D. POST-CLOSING REPAIR ESCROW FUND. Borrower shall perform the repairs at
its Properties that are more particularly set forth on Schedule 13.D (the
"POST-CLOSING REPAIRS"). Borrower shall complete each of the Post-Closing
Repairs on or before the required deadline for each repair as set forth on
Schedule 13.D, and on the Closing Date Borrower shall deposit with Lender the
amount for each Individual Property set forth that Schedule 13.D. Amounts so
deposited with Lender shall be held by Lender in an interest bearing account,
and are hereafter referred to as the "POST CLOSING REPAIR ESCROW FUND".
(1) Time For Performance. All Post-Closing Repairs shall be promptly
undertaken by Borrower and carried forward with reasonable diligence
thereafter, and shall in all events be completed to the satisfaction of
Lender and the Inspecting Architect within a period of 90 days after
the date of this Agreement.
(2) Standard For Performance. All Post-Closing Repairs shall be performed
in a first class manner, using licensed contractors who are qualified
to perform the Repairs. Borrower may, with Lender's prior written
consent use its own employees for those portions of the Post-Closing
Repairs so approved. All Post-Closing Repairs shall be performed to
Lender's reasonable satisfaction.
(3) Application of the Post-Closing Repair Escrow Fund. Lender shall apply
the Post-Closing Repair Escrow Fund to payment of or reimbursement for
the Post-Closing Repairs, as provided in this Agreement. In making any
payment relating to the Post-Closing Repair Escrow Fund, Lender may do
so (but may not be compelled to against its sole judgment) according to
any bill or statement provided to it, without inquiry into the accuracy
of that bill or statement. If the amount of the Post-Closing Repair
Escrow Fund shall at any time be less than the amount reasonably
estimated by Lender at any time to be necessary in order to complete
the Post-Closing Repairs, Borrower shall deposit the additional amount
into the Post-Closing Repair Escrow Fund within 10 days after written
notice to do so by Lender.
45
<PAGE> 50
(4) Inspecting Architect. Servicing Agent shall appoint an "INSPECTING
ARCHITECT", who may be any licensed architect or engineer meeting with
the Servicing Agent's satisfaction, and whose responsibility shall be
to inspect and approve all Post-Closing Repairs to be performed under
the Post-Closing Repair Escrow Fund. The Inspecting Architect shall
from time-to-time issue "ARCHITECT'S CERTIFICATES" attesting to his
satisfaction with the completion of the Post-Closing Repairs and
recommending the amount of funds to be disbursed with respect to the
Post-Closing Repairs so approved. The Architect's Certificate shall, in
each event, include a reconciliation of the total cost of the
Post-Closing Repairs, the amount of the Post-Closing Repairs
satisfactorily completed to date, the amount recommended to be
disbursed with respect to that Certificate and the amount of the
Post-Closing Repairs remaining to be completed (and all holdbacks with
respect to all Post-Closing Repairs theretofore completed). The costs
and expenses of the Inspecting Architect shall be paid by Borrower and
may, at the option of the Servicing Agent, be paid from the funds
remaining in escrow at any time. The Servicing Agent may also require
that all plans and specifications for the Post-Closing Repairs be
submitted to and approved by the Servicing Agent and/or the Inspecting
Architect prior to commencement of the Post-Closing Repairs.
(5) Disbursement Requirements. In the event Borrower is entitled to
reimbursement out of the Post-Closing Repair Escrow Fund, funds from
Post-Closing Repair Escrow Fund shall be disbursed from time-to-time
upon Servicing Agent being furnished with (1) evidence satisfactory to
it of the estimated cost of completion of any Post-Closing Repairs
remaining to be completed, (2) funds, or, at Lender's option,
assurances satisfactory to Lender that those funds are available,
sufficient in addition to the Post-Closing Repair Escrow Fund to
complete the balance of the required Post-Closing Repairs, and (3) an
Architect's Certificate, waivers of lien, contractor's sworn
statements, title insurance endorsements, bonds, plats of survey and
any other evidence of cost, payment and performance of the Post-Closing
Repairs as Lender and/or the Servicing Agent may reasonably require and
approve.
(6) Holdback. No payment made prior to the final completion of the
Post-Closing Repairs shall exceed ninety percent (90%) of the value of
the Post-Closing Repairs performed from time-to-time; funds other than
proceeds of this Post-Closing Repair Escrow Fund shall be disbursed
prior to disbursement of any portion of this Post-Closing Repair Escrow
Fund and, at all times, the undisbursed balance of the funds remaining
in the Post-Closing Repair Escrow Fund, together with funds deposited
for that purpose or irrevocably committed by or on behalf of Borrower
to the satisfaction of the Servicing Agent for that purpose, shall be
at least sufficient in the reasonable judgment of the Servicing Agent
to pay for the cost of completion of the Post-Closing Repairs, free and
clear of all liens or claims for lien.
(7) Failure by Borrower to Complete the Post-Closing Repairs. In the event
that Lender shall at any time determine that Borrower has abandoned the
Post-Closing Repairs, or failed to complete the Post-Closing Repairs as
or within the time required under this Agreement, Lender may request in
writing (and the Servicing Agent shall disburse) any funds remaining in
the Post-Closing Repair Escrow Fund to pay for that Post-Closing
Repairs contracted by Lender (or by Servicing Agent for Lender's
benefit). Provided that there is not then in existence any Event of
Default, Lender shall give written notice to both Borrower and the
Servicing Agent at least five Business Days prior to the disbursement
by the Servicing Agent of any sums to Lender on account of any such
payment to be made under this Paragraph 13.D.
(8) Continuation of Obligations Under Loan Documents. Nothing under this
Paragraph 13.D shall in any manner whatsoever alter, impair or affect
the obligations of Borrower, or relieve Borrower of any of its
obligations, to make payment and to perform of its other obligations
required pursuant to any other provisions of this Agreement or under
the Note, the Mortgages and the other Loan Documents.
46
<PAGE> 51
E. CLOSING COMPLIANCE ESCROW FUND. As a practical matter, Borrower is not
likely to be able to satisfy all of Lender's the requirements of this Agreement
prior to the scheduled Closing Date, particularly those requirements in
connection with Third Party Reports, Survey and certain Lease-Related
Requirements (each as defined in the Loan Commitment). Lender has nevertheless
agreed to make the Loan if (i) in Lender's sole judgment, based upon information
and documentation provided to Lender by Borrower and otherwise available to
Lender, Lender believes that those requirements (the "INCOMPLETE ITEMS") will be
satisfied in substance as of the Closing Date, and can be fully satisfied as to
form within 60 days after the Closing Date; and (ii) Borrower shall have
deposited with Lender as of the Closing Date of one of the two amounts, as
elected by Lender: (i) 1% of the Loan Amount or (ii) 150% of an amount deemed
sufficient by Lender to assure satisfaction of Lender's customary requirements,
to be determined by Lender (the "CLOSING COMPLIANCE ESCROW FUND"). The Closing
Compliance Escrow Fund will be held by Lender or the Servicing Agent and
administered as follows:
(1) Identification of Incomplete Items. All incomplete Items actually known
to Lender will be identified in Schedule 13.E. Lender reserves the
right in its discretion to add Incomplete Items to Schedule 13.E after
the Closing Date, as, if and when they come to Lender's attention and
after notice to Borrower as provided under this Agreement.
(2) Standard For Completion. All Incomplete Items shall be completed to
Lender's sole satisfaction in conformance with Lender's customary
requirements in connection with the making of commercial mortgage loans
intended for Secondary Market Transactions, unless a different standard
is specifically stated in Schedule 13.E.
(3) Time For Performance. All Incomplete Items shall be promptly undertaken
by Borrower and carried forward with reasonable diligence thereafter,
and shall in all events be completed to the satisfaction of Lender
within the period after the date of this Agreement that is stipulated
for that Incomplete Item in the attached Schedule 13.E. Any Incomplete
Item added to the list after the Closing Date must be completed to
Lender's satisfaction within the greater of (ii) 30 days after notice
to Borrower by Lender or such longer period as Lender shall permit in
that notice or (ii) the time remaining in the period for completion of
Incomplete Items originally included as such as of the Closing Date.
(4) Application of the Closing Compliance Escrow Fund. Lender shall apply
the Closing Compliance Escrow Fund to payment of or reimbursement for
the Incomplete Items, as provided in this Agreement. In making any
payment relating to the Closing Compliance Escrow Fund, Lender may do
so (but may not be compelled to against its sole judgment) according to
any bill or statement provided to it, without inquiry into the accuracy
of that bill or statement. If the amount of the Closing Compliance
Escrow Fund shall at any time be less than the amount reasonably
estimated by Lender at any time to be necessary in order to complete
the Incomplete Items, Borrower shall deposit the additional amount into
the Closing Compliance Escrow Fund within 10 days after written notice
to do so by Lender.
(5) Failure by Borrower to Complete the Incomplete Items. In the event that
Lender shall at any time determine that Borrower has abandoned the
performance of the Incomplete Items, or failed to complete the
Incomplete Items as or within the time required under this Agreement,
Lender may apply any funds remaining in the Closing Compliance Escrow
Fund to pay for that Incomplete Items contracted by Lender. Provided
that there is not then in existence any Event of Default, Lender shall
give written notice to both Borrower at least five Business Days prior
to the disbursement of any sums to Lender on account of any such
payment to be made under this Paragraph 13.E.
(6) Continuation of Obligations Under Loan Documents. Nothing under this
Paragraph 13.E shall in any manner whatsoever alter, impair or affect
the obligations of Borrower, or relieve Borrower of any of its
obligations, to make payment and to perform of its other obligations
required pursuant to any other provisions of this Agreement or under
the Note, the Mortgages and the other Loan Documents.
47
<PAGE> 52
(7) Indemnification. Borrower and Guarantor shall protect, indemnify, and
hold harmless each and all of the Indemnities from and against all
liabilities, obligations, claims, demands, damages, penalties, causes
of action, losses, fines, costs and expenses (including without
limitation reasonable attorneys' fee and expenses), imposed upon or
incurred by or asserted against Lender by reason of the failure of
Borrower to complete or properly perform the Incomplete Items or any
element thereof. Each and all of the covenants and agreements and
indemnities contained in this Paragraph 13.E shall survive any
termination, satisfaction or assignment of the Loan Documents or the
entry of a judgment of foreclosure, sale of any or all of the
Individual Properties by nonjudicial foreclosure sale, delivery of a
deed in lieu of foreclosure or the exercise by Lender of any of its
other rights and remedies under the Loan Documents.
F. GRANT OF SECURITY INTEREST. Borrower pledges, assigns and grants a
security interest to Lender, as security for payment of all sums due under the
Loan and the performance of all other terms, conditions and covenants of the
Loan Documents and this Agreement on Borrower's part to be paid and performed,
in all of Borrower's right, title and interest in and to the Tax and Insurance
Escrow Fund, the Replacement Escrow Fund, the Rollover Escrow Fund, the Post
Closing Repair Escrow, the Closing Compliance Escrow Fund and any other escrow
fund, retention, reserve or similar impound required or established by Lender at
any time hereafter with respect to the Loan (together the "RESERVED ACCOUNTS").
Borrower shall not, without obtaining the prior written consent of Lender,
further pledge, assign or grant any security interest in the Reserved Accounts
or permit any lien or encumbrance to attach thereto, or any levy to be made the
on Reserved Accounts, or any UCC-1 Financing Statements, except those naming
Lender as the secured party, to be filed with respect the Reserved Accounts.
Upon the occurrence of an Event of Default, Lender may apply any sums then
present in any or all of the Reserved Accounts to the payment of the Debt in any
order in its sole discretion. Until expended or applied as herein provided, the
Reserved Accounts shall constitute additional security for the Debt. The
Reserved Accounts shall not constitute a trust fund and may be commingled with
other monies held by Lender not relating to the Properties.
G. INTEREST ON CERTAIN FUNDS. The Reserved Accounts (with the exception of
the Closing Compliance Escrow Fund) shall be held in an account in Lender's name
at a financial institution selected by Lender in its sole discretion and will
accrued interest at a risk-free short term rate less Lender's escrow
administration fee of 1% (i.e. if short term U.S. Treasury instruments bear
interest at 4%, then the Interest-Bearing Reserves will earn interest at 3%) and
fees and costs payable under the Lockbox Agreement. All earnings or interest on
the interest-bearing Reserved Accounts shall be and become part of those
respective Reserved Accounts and shall be disbursed as provided in the
applicable provisions of this Paragraph 13.
H. LENDER'S GENERAL RIGHTS AND POWERS. In order to facilitate Lender's
completion or making of the completing any of the work or tasks (including
without limitation, any repairs or replacements) required of Borrower under or
pursuant to the provisions of this Paragraph 13 (the "WORK"), Lender is granted
the rights, powers and authority described below, and shall be subject to the
following provisions:
(1) Borrower grants Lender the right to enter onto any Individual Property
and perform any and all work and labor necessary to complete the Work
and/or employ watchmen to protect that Individual Property from damage.
All sums so expended by Lender shall be deemed to have been advanced
under the Loan to Borrower and secured by the Mortgages. For this
purpose Borrower constitutes and appoints Lender its true and lawful
attorney-in-fact with full power of substitution to complete or
undertake the Work in the name of Borrower. This power of attorney
shall be deemed to be a power coupled with an interest and cannot be
revoked. Borrower empowers its attorney-in-fact as follows: (i) to use
any funds in the Reserved Accounts for the purpose of making or
completing the Work; (ii) to make those additions, changes and
corrections to the Work as shall be necessary or desirable to complete
the Work; (iii) to employ those contractors, subcontractors, agents,
architects and inspectors as shall be required for those purposes; (iv)
to pay, settle or compromise all existing bills and claims which are or
may become Liens against any Individual Property, or as may be
necessary or desirable for the
48
<PAGE> 53
completion of the Work, or for clearance of title; (v) to execute all
applications and certificates in the name of Borrower which may be
required by any of the contract documents; (vi) to prosecute and defend
all actions or proceedings in connection with any Individual Property
or the rehabilitation and repair of any Individual Property; and (vii)
to do any and every act which Borrower might do in its own behalf to
fulfill the terms of this Agreement.
(2) Nothing in this Paragraph 13 shall: (i) make Lender responsible for
making or completing the Work; (ii) require Lender to expend funds in
addition to the Reserved Accounts to make or complete any Work; (iii)
obligate Lender to proceed with the Work; or (iv) obligate Lender to
demand from Borrower additional sums to make or complete any Work.
(3) Borrower shall permit Lender and Lender's agents and representatives
(including, without limitation, Lender's engineer, architect, or
inspector) or third parties making Work pursuant to this Paragraph 13
to enter onto each Individual Property during normal business hours
(subject to the rights of tenants under their Leases) to inspect the
progress of any Work and all materials being used in connection
therewith, to examine all plans and shop drawings relating to those
Work which are or may be kept at each Individual Property, and to
complete any Work made pursuant to this Paragraph 13. Borrower shall
cause all contractors and subcontractors to cooperate with Lender or
Lender's representatives or those other persons described above in
connection with inspections described in this Paragraph 13 or the
completion of Work pursuant to this Paragraph 13.
(4) Lender may require an inspection of the Individual Property at
Borrower's expense prior to making a monthly disbursement from the Work
Reserve Account in order to verify completion of the Work for which
reimbursement is sought if in the reasonable judgment of Lender,
special circumstances exists which require an inspection. Lender may
require that that inspection be conducted by an appropriate independent
qualified professional selected by Lender and/or may require a copy of
a certificate of completion by an independent qualified professional
acceptable to Lender prior to the disbursement of any amounts from the
Work Reserve Account. Borrower shall pay the expense of the inspection
as required hereunder, whether that inspection is conducted by Lender
or by an independent qualified professional.
(5) The Work and all materials, equipment, fixtures, or any other item
comprising a part of any Work shall be constructed, installed or
completed, as applicable, free and clear of all mechanic's,
materialman's or other liens (except for those Liens existing on the
date of this Agreement which have been approved in writing by Lender).
(6) Before each disbursement from any Reserved Fund applicable to
respective elements of the Work, Lender may require Borrower to provide
Lender with a search of title to the applicable Individual Property
effective to the date of the disbursement, which search shows that no
mechanic's or materialmen's liens or other liens of any nature have
been placed against the applicable Individual Property since the date
of recordation of the related Mortgage and that title to that
Individual Property is free and clear of all Liens (other than the lien
of the related Mortgage and any other Liens previously approved in
writing by the Lender, if any).
(7) Where applicable, all Work shall comply with all applicable laws,
ordinances, rules and regulations of all governmental authorities
having jurisdiction over the applicable Individual Property and
applicable insurance requirements including, without limitation,
applicable building codes, special use permits, environmental
regulations, and requirements of insurance underwriters.
(8) In addition to any insurance required under the Loan Documents,
Borrower shall provide or cause to be provided workmen's compensation
insurance, builder's risk, and public liability insurance and other
insurance to the extent required under applicable law in
49
<PAGE> 54
connection with any Work to which that insurance is applicable and
where in Lender's sole judgment shall be required. All such policies
shall be in form and amount reasonably satisfactory to Lender, and
where they can be endorsed with standard Lender clauses making loss
payable directly to Lender or its assigns shall be so endorsed.
Certified copies of those policies shall be delivered to Lender.
(9) Indemnification. Borrower shall protect, indemnify, and hold harmless
each and all of the Indemnities from and against all liabilities,
obligations, claims, demands, damages, penalties, causes of action,
losses, fines, costs and expenses (including without limitation
reasonable attorneys' fee and expenses), imposed upon or incurred by or
asserted against Lender or the Servicing Agent by reason of the failure
of Borrower to complete or properly perform any Work or any element
thereof. Borrower shall assign to Lender all rights and claims Borrower
may have against all persons or entities supplying labor or materials
in connection with the Work, but Lender may not pursue any such right
or claim unless an Event of Default has occurred and remains uncured.
Each and all of the covenants and agreements and indemnities contained
in this Paragraph 13 with respect to any Work shall survive any
termination, satisfaction or assignment of the Loan Documents or the
entry of a judgment of foreclosure, sale of any or all of the
Individual Properties by nonjudicial foreclosure sale, delivery of a
deed in lieu of foreclosure or the exercise by Lender of any of its
other rights and remedies under the Loan Documents.
I. INSUFFICIENCY IN THE RESERVED ACCOUNT. The insufficiency of any
balance in any Reserved Account shall not relieve Borrower from its
corresponding obligations of performance and payment under this Agreement and
the other Loan Documents.
14. EVENTS OF DEFAULT
Each of the following events shall constitute an event of default hereunder
(an "EVENT OF DEFAULT"):
A. if any payment of principal and/or interest on the Debt is not paid
within the period provided in the Note, if the Taxes or Other Charges are not
paid when they are due and payable (except as specifically permitted otherwise
under the terms of this Agreement), and/or if any sum payable by Borrower under
the Reserved Accounts, is not paid within the period provided in the Note for
payment of installments of principal and interest, or if any other portion of
the Debt is not paid within five days after the same is due;
B. subject to Borrower's right to contest as provided in this Agreement with
respect to Contested Claims, if any of the Taxes or Other Charges are not paid
when the same are due and payable;
C. if the Policies are not kept in full force and effect, or if the Policies
are not delivered to Lender upon request;
D. if Borrower Transfers or encumbers any portion of any of the Properties
without Lender's prior written consent;
E. if any representation or warranty of Borrower, or of any Guarantor, made
in this Agreement or in any other Loan Document, or in any certificate, report,
financial statement or other instrument or document furnished to Lender shall
have been false or misleading in any material respect when made;
F. if Borrower, any general partner or managing member of Borrower, or any
Guarantor shall make an assignment for the benefit of creditors or if Borrower,
any general partner or managing member of Borrower, or any Guarantor, shall
generally not be paying its debts as they become due;
G. if a receiver, liquidator or trustee of Borrower, any general partner or
managing member of Borrower, or of any Guarantor shall be appointed or if
Borrower, any general partner or managing member of Borrower, or any Guarantor
shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy,
reorganization or arrangement pursuant to federal bankruptcy law, or any similar
federal or state law, shall be filed by or against, consented to, or acquiesced
in by, Borrower, any general partner or
50
<PAGE> 55
managing member of Borrower, or any Guarantor or if any proceeding for the
dissolution or liquidation of Borrower, any general partner or managing member
of Borrower, or of any Guarantor shall be instituted; however, if such
appointment, adjudication, petition or proceeding was involuntary and not
consented to by Borrower, any general partner or managing member of Borrower, or
such Guarantor, upon the same not being discharged, stayed or dismissed within
60 days;
H. if Borrower shall be in default under any other mortgage or security
agreement covering any part of any of the Properties whether it be superior or
junior in lien of the corresponding Mortgage;
I. subject to Borrower's right to contest any Contested Claim as provided in
this Agreement, if the Mortgaged Property becomes subject to any mechanic's,
materialman's or other lien except a lien for local real estate taxes and
assessments not then due and payable;
J. if Borrower fails to cure properly any violations of laws or ordinances
affecting or which may be interpreted to affect any of the Properties within 30
days after Borrower first receives notice of any such violations;
K. except as permitted in this Agreement or the Mortgages, the actual or
threatened alteration, improvement, demolition or removal of any of the
Improvements without the prior consent of Lender;
L. if Borrower shall continue to be in default under any term, covenant, or
provision of the Note, the Mortgages or any of the other Loan Documents, beyond
applicable cure periods contained in those documents;
M. if Borrower attempts to assign its rights under this Agreement or any of
the other Loan Documents or any interest herein or therein in contravention of
the Loan Documents;
N. if Borrower breaches any of its respective negative covenants contained
in Paragraph 8 or any covenant contained in Paragraph 6.L;
O. with respect to any term, covenant or provision set forth in this
Agreement which specifically contains a notice requirement or grace period, if
Borrower shall be in default under that term, covenant or condition after the
giving of that notice or the expiration of that grace period;
P. if any of the assumptions contained in Insolvency Opinion delivered to
Lender in connection with the Loan, or in any other "non-consolidation" opinion
delivered subsequent to the closing of the Loan, is or shall become inaccurate
or untrue in any material respect;
Q. if, without Lender's prior written consent, (i) the Management Agreement
is terminated with respect to any or all of the Properties, (ii) the ownership,
management or control of Manager is Transferred (as prohibited under, but
subject to the terms of, Paragraph 8.D of this Agreement), (iii) there is a
material change in the Management Agreement, or (iv) if there shall be a
material default by Borrower under the Management Agreement that is not fully
cured prior to the expiration of any cure period provided thereunder; or
R. if Borrower ceases to continuously operate all of the Properties or any
material portion of any Individual Properties as a retail shopping center for
any reason whatsoever (other than temporary cessation in connection with any
repair, Restoration or renovation undertaken pursuant to the terms of this
Agreement, or otherwise with the consent of Lender).
S. if Borrower fails to cure a Default, not specified in Paragraphs 14.A
through 14.R above, under any other term, covenant or provision of this
Agreement within 30 days after Borrower first receives notice of any that
Default; provided, however, if that Default is reasonably susceptible of cure,
but not within that 30 day period, then Borrower may be permitted up to an
additional 60 days to cure that Default, provided that Borrower diligently and
continuously pursues that cure;
Upon the occurrence of an Event of Default (other than an Event of Default
described in Paragraphs 14.M through 14.P above) and at any time thereafter the
Lender may, in addition to any other rights or remedies available to it pursuant
to this Agreement and the other Loan Documents or at law or in equity, take that
action, without notice or demand, that Lender deems advisable to protect and
enforce its rights against Borrower and in and to all or any of the Properties,
including, without limitation, declaring
51
<PAGE> 56
the Debt to be immediately due and payable, and Lender may enforce or avail
itself of any or all rights or remedies provided in the Loan Documents against
Borrower and any or all of the Properties, including, without limitation, all
rights or remedies available at law or in equity; and upon any Event of Default
described in Paragraphs 14.M through 14.P above, the Debt and all other
obligations of Borrower hereunder and under the other Loan Documents shall
immediately and automatically become due and payable, without notice or demand,
and Borrower expressly waives any such notice or demand, anything contained in
this Agreement or in any other Loan Document to the contrary notwithstanding.
15 REMEDIES
A. LENDER'S GENERAL RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default, all or any one or more of the rights, powers, privileges and other
remedies available to Lender against Borrower under this Agreement or any of the
other Loan Documents executed and delivered by, or applicable to, Borrower or at
law or in equity may be exercised by Lender at any time and from time-to-time,
whether or not all or any of the Debt shall be declared due and payable, and
whether or not Lender shall have commenced any foreclosure proceeding or other
action for the enforcement of its rights and remedies under any of the Loan
Documents with respect to all or any of the Properties. Any such actions taken
by Lender shall be cumulative and concurrent and may be pursued independently,
singly, successively, together or otherwise, at that time and in that order as
Lender may determine in its sole discretion, to the fullest extent permitted by
law, without impairing or otherwise affecting the other rights and remedies of
Lender permitted by law, equity or contract or as set forth in this Agreement or
in the other Loan Documents. Without limiting the generality of the foregoing,
Borrower agrees that if an Event of Default is continuing (i) Lender is not
subject to any "single action" or "election of remedies" law or rule, and (ii)
all liens and other rights, remedies or privileges provided to Lender shall
remain in full force and effect until Lender has exhausted all of its remedies
against the Properties and each Mortgage has been foreclosed, sold and/or
otherwise realized upon in satisfaction of the Debt or the Debt has been paid in
full.
B. RIGHTS EXERCISED SEPARATELY. With respect to Borrower and the Properties,
nothing contained in this Agreement or in any other Loan Document shall be
construed as requiring Lender to resort to any Individual Property for the
satisfaction of any of the Debt in preference or priority to any other
Individual Property, and Lender may seek satisfaction out of all of the
Properties or any part thereof, in its absolute discretion in respect of the
Debt. In addition, Lender shall have the right from time-to-time to partially
foreclose the Mortgages in any manner and for any amounts secured by the
Mortgages then due and payable as determined by Lender in its sole discretion
including, without limitation, the following circumstances: (i) in the event
Borrower defaults beyond any applicable grace period in the payment of one or
more scheduled payments of principal and interest, Lender may foreclose one or
more of the Mortgages to recover those delinquent payments, or (ii) in the event
Lender elects to accelerate less than the entire outstanding principal balance
of the Loan, Lender may foreclose one or more of the Mortgages to recover so
much of the principal balance of the Loan as Lender may accelerate and those
other sums secured by one or more of the Mortgages as Lender may elect.
Notwithstanding one or more partial foreclosures, the Properties shall remain
subject to the Mortgages to secure payment of sums secured by the Mortgages and
not previously recovered.
C. SEVERANCE RIGHTS. Lender shall have the right from time-to-time (and
without regard to the existence of an Event of Default) to sever the Note and
the other Loan Documents into one or more separate notes, mortgages and other
security documents (the "SEVERED LOAN DOCUMENTS") in those denominations as
Lender shall determine in its sole discretion for purposes of evidencing and
enforcing its rights and remedies provided hereunder. Borrower shall execute and
deliver to Lender from time-to-time, promptly after the request of Lender, a
severance agreement and those other documents as Lender shall request in order
to effect the severance described in the preceding sentence, all in form and
substance reasonably satisfactory to Lender. Borrower absolutely and irrevocably
appoints Lender as its true and lawful attorney, coupled with an interest, in
its name and stead to make and execute all documents necessary or desirable to
effect the aforesaid severance, Borrower ratifying all that its said attorney
shall do by virtue thereof; provided, however, Lender shall not make or execute
any such documents under that power until three days after notice has been given
to Borrower by Lender of Lender's intent to exercise its rights under that
power. Except as may be required in connection with a Secondary Market
Transaction, (i) Borrower shall not be obligated to pay any costs or expenses
incurred
52
<PAGE> 57
in connection with the preparation, execution, recording or filing of the
Severed Loan Documents, and (ii) the Severed Loan Documents shall not contain
any representations, warranties or covenants not contained in the Loan Documents
and any such representations and warranties contained in the Severed Loan
Documents will be given by Borrower only as of the Closing Date.
D. REMEDIES CUMULATIVE. The rights, powers and remedies of Lender under this
Agreement shall be cumulative and not exclusive of any other right, power or
remedy which Lender may have against Borrower pursuant to this Agreement or the
other Loan Documents, or existing at law or in equity or otherwise. Lender's
rights, powers and remedies may be pursued singly, concurrently or otherwise, at
that time and in that order as Lender may determine in Lender's sole discretion.
No delay or omission to exercise any remedy, right or power accruing upon an
Event of Default shall impair any such remedy, right or power or shall be
construed as a waiver thereof, but any such remedy, right or power may be
exercised from time-to-time and as often as may be deemed expedient. A waiver of
one Default or Event of Default with respect to Borrower shall not be construed
to be a waiver of any subsequent Default or Event of Default by Borrower or to
impair any remedy, right or power consequent thereon.
16. RECOURSE
A. NON-RECOURSE PROVISIONS. Subject to the qualifications below, Lender
shall not enforce the liability and obligation of Borrower to perform and
observe the obligations contained in this Agreement, the Mortgages, the Note or
any of the other Loan Documents by any action or proceeding wherein a money
judgment shall be sought against Borrower, except that Lender may bring a
foreclosure action, an action for specific performance or any other appropriate
action or proceeding to enable Lender to enforce and realize upon its interests
under the Note, this Agreement, the Mortgages or the other Loan Documents or in
the Property, the Rents or any other collateral given to Lender pursuant to this
Agreement, the Mortgages and the other Loan Documents; provided, however, that,
except as specifically provided herein, any judgment in any such action or
proceeding shall be enforceable against Borrower only to the extent of
Borrower's interest in the Property, in the Rents and in any other collateral
given to Lender, and Lender, by accepting this Agreement, the Mortgages, the
Note and the other Loan Documents, agrees that it shall not sue for, seek or
demand any deficiency judgment against Borrower in any such action or proceeding
under or by reason of or in connection with this Agreement, the Mortgages, the
Note or any of the other Loan Documents.
B. CARVE-OUT EXCEPTIONS. The provisions of the foregoing Paragraph 16.A
shall not, however, (i) constitute a waiver, release or impairment of any
obligation evidenced or secured by the Mortgages, the Note or any of the other
Loan Documents; (ii) impair the right of Lender to name Borrower as a party
defendant in any action or suit for foreclosure and sale under the Mortgages;
(iii) affect the validity or enforceability of any guaranty made in connection
with the Loan or any of the rights and remedies of the Lender thereunder; (iv)
impair the right of Lender to obtain the appointment of a receiver; (v) impair
the enforcement of the Assignment of Leases and Rents or the Environmental
Indemnity executed in connection herewith; or (vi) constitute a waiver of the
right of Lender to enforce the liability and obligation of Borrower, by money
judgment or otherwise, to the extent of any loss, damage, cost, expense,
liability, claim or other obligation incurred by Lender (including attorneys'
fees and costs reasonably incurred) arising out of or in connection with the
following: (A) fraud or intentional misrepresentation by Borrower, its agents or
principals or any Guarantor in connection with the Loan; (B) the gross
negligence or willful misconduct of Borrower; (C) intentional actual waste of
the Property; (D) the breach of any representation, warranty, covenant or
indemnification provision in that certain Environmental and Hazardous Substance
Indemnification Agreement dated as of the date of this Agreement given by
Borrower to Lender or in the Mortgages concerning Environmental Laws, Hazardous
Substances and Asbestos; (E) the removal or disposal of any portion of the
Property after an Event of Default; (F) the misapplication or conversion by
Borrower of (i) any insurance proceeds paid by reason of any loss, damage or
destruction to the Property, (ii) any awards or other amounts received in
connection with the condemnation of all or a portion of the Property, or (iii)
any Rents following an Event of Default; (G) costs incurred by Lender (including
reasonable attorneys' fees) in the collection or enforcement of the Debt, the
protection or foreclosure of the security therefor, or the enforcement of the
Loan Documents; (H) failure to permit on-site inspections of the Property within
10 days after request by Lender, and/or failure to provide financial information
within 30 days after the date upon which such financial information is due and
Lender has given at least 15 days prior written notice to Borrower of that
failure by Borrower to
53
<PAGE> 58
provide that information; (I) failure to pay taxes (provided that the liability
of Borrower shall be only for amounts in excess of the amount held by Lender in
escrow for the payment of taxes, computed without taking into consideration any
portion of any such escrow that Lender may have applied in satisfaction of any
portion of the Debt other than those taxes), assessments, charges for labor or
materials or other charges that can create liens on any portion of the Property;
(J) any security deposits collected with respect to the Property which are not
delivered to Lender upon a foreclosure of the Property or action in lieu
thereof, except to the extent any such security deposits were applied in
accordance with the terms and conditions of any of the Leases prior to the
occurrence of the Event of Default that gave rise to that foreclosure or action
in lieu thereof; and (K) Borrower's failure to comply with the provisions of
Paragraph 44(a) (ERISA Compliance) of the Mortgages.
C. NON-WAIVER AND SPRINGING RECOURSE. Notwithstanding anything to the
contrary in any of the Loan Documents, (i) Lender shall not be deemed to have
waived any right which Lender may have under Sections 506(a), 506(b), 1111(b) or
any other provisions of the U.S. Bankruptcy Code to file a claim for the full
amount of the Debt secured by the Mortgages or to require that all collateral
shall continue to secure all of the Debt owing to Lender in accordance with the
Loan Documents, and (ii) the Debt shall become fully recourse to Borrower, in
the event that: (1) Borrower fails to maintain its status as a single purpose
entity, as required by, and in accordance with the provisions of, this
Agreement; (2) Borrower fails to obtain Lender's prior written consent to any
subordinate financing or other voluntary lien encumbering the Property; (3)
Borrower fails to obtain Lender's prior written consent to any Transfer (as
defined in this Agreement), as required by this Agreement; or (4) the Property
or any part thereof shall become an asset in a voluntary bankruptcy or
insolvency proceeding, or an involuntary bankruptcy or insolvency proceeding (A)
which is commenced by any party controlling, controlled by or under common
control with Borrower (the "BORROWING GROUP") or (B) in which any member of the
Borrowing Group objects to a motion by Lender for relief from any stay or
injunction from the foreclosure of any one or more of the Mortgages or any other
remedial action permitted hereunder or under this Agreement, any one or more of
the Mortgages or the other Loan Documents.
17. MISCELLANEOUS
A. SURVIVAL. This Agreement and all covenants, agreements, representations
and warranties made in this Agreement and in the certificates delivered pursuant
hereto shall survive the making by Lender of the Loan and the execution and
delivery to Lender of the Note, and shall continue in full force and effect so
long as all or any of the Debt is outstanding and unpaid unless a longer period
is expressly set forth in this Agreement or in the other Loan Documents.
Whenever in this Agreement any of the parties hereto is referred to, that
reference shall be deemed to include the legal representatives, successors and
assigns of that party. All covenants, promises and agreements in this Agreement,
by or on behalf of Borrower, shall inure to the benefit of the legal
representatives, successors and assigns of Lender.
B. LENDER'S DISCRETION. Whenever pursuant to this Agreement, Lender
exercises any right given to it to approve or disapprove, or any arrangement or
term is to be satisfactory to Lender, the decision of Lender to approve or
disapprove or to decide whether arrangements or terms are satisfactory or not
satisfactory shall (except as is otherwise specifically provided in this
Agreement) be in the sole discretion of Lender and shall be final and
conclusive.
C. GOVERNING LAW. THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF MICHIGAN,
AND MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF MICHIGAN, AND THE
PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF
MICHIGAN, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE
PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED BY THIS AGREEMENT, AND IN ALL
RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF MICHIGAN APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT
STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF
THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE
CREATION,
54
<PAGE> 59
PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT
HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS WITH RESPECT TO THE REAL
PROPERTY SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN
WHICH THE APPLICABLE INDIVIDUAL PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT,
TO THE FULLEST EXTENT PERMITTED BY THE LAW OF THAT STATE, THE LAW OF THE STATE
OF MICHIGAN SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL
LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO
THE FULLEST EXTENT PERMITTED BY LAW, BORROWER UNCONDITIONALLY AND IRREVOCABLY
WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS
AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN.
ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT
OF OR RELATING TO THIS AGREEMENT MAY AT LENDER'S OPTION BE INSTITUTED IN ANY
FEDERAL OR STATE COURT IN THE STATE OF MICHIGAN, AND BORROWER WAIVES ANY
OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON
CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.
BORROWER DOES DESIGNATE AND APPOINT THE CORPORATION COMPANY, AT 30600 TELEGRAPH
ROAD, BINGHAM FARMS, MICHIGAN 48025, AS ITS AUTHORIZED AGENT TO ACCEPT AND
ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN
ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN OAKLAND
COUNTY, MICHIGAN, AND AGREES THAT SERVICE OF PROCESS UPON THAT AGENT AT THAT
ADDRESS AND WRITTEN NOTICE OF THAT SERVICE MAILED OR DELIVERED TO BORROWER IN
THE MANNER PROVIDED IN THIS AGREEMENT SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE
STATE OF MICHIGAN. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY
CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM
TIME-TO-TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN OAKLAND
COUNTY, MICHIGAN (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE
PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE
SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN OAKLAND
COUNTY, MICHIGAN OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
D. MODIFICATION, WAIVER IN WRITING. No modification, amendment, extension,
discharge, termination or waiver of any provision of this Agreement, or of the
Note, or of any other Loan Document, nor consent to any departure by Borrower
therefrom, shall in any event be effective unless the same shall be in a writing
signed by the party against whom enforcement is sought, and then that waiver or
consent shall be effective only in the specific instance, and for the purpose,
for which given. Except as otherwise expressly provided in this Agreement, no
notice to, or demand on Borrower, shall entitle Borrower to any other or future
notice or demand in the same, similar or other circumstances.
E. DELAY NOT A WAIVER. Neither any failure nor any delay on the part of
Lender in insisting upon strict performance of any term, condition, covenant or
agreement, or exercising any right, power, remedy or privilege hereunder, or
under the Note or under any other Loan Document, or any other instrument given
as security therefor, shall operate as or constitute a waiver thereof, nor shall
a single or partial exercise thereof preclude any other future exercise, or the
exercise of any other right, power, remedy or privilege. In particular, and not
by way of limitation, by accepting payment after the due date of any amount
payable under this Agreement, the Note or any other Loan Document, Lender shall
not be deemed to have waived any right either to require prompt payment when due
of all other amounts due under this Agreement, the Note or the other Loan
Documents, or to declare a default for failure to effect prompt payment of any
such other amount.
F. NOTICES. Any notice, demand, statement, request or consent made hereunder
shall be in writing, addressed to the address, as set forth above, of the party
to whom that notice is to be given, or to such other address as Borrower or
Lender, as the case may be, shall designate in writing, and shall be
55
<PAGE> 60
deemed to be received by the addressee on (i) the day that notice is personally
delivered to that addressee, (ii) the third (3rd) day following the day that
notice is deposited with the United States postal service first class certified
mail, return receipt requested, (iii) the day following the day on which that
notice is delivered to a nationally recognized overnight courier delivery
service, or (iv) the day facsimile transmission is confirmed, after transmission
of that notice by telecopy to the telecopier number Borrower or Lender, as the
case may be, shall have previously designated in writing, if confirmed during
normal business hours, or on the next Business Day if not confirmed during
normal business hours. All those communications shall be mailed, sent or
delivered, addressed to the party for whom it is intended at its address set
forth below.
If to Lender:
Bloomfield Acceptance Company, L.L.C.
260 East Brown Street
Suite 350
Birmingham, Michigan 48009-6229
Attention: Daniel E. Bober
If to Borrower:
Malan Midwest, L.L.C.
30200 Telegraph Road, Suite 105
Birmingham, Michigan 48205
Attention: Anthony S. Gramer
Either party may designate a change of address by written notice to the other by
giving at least 10 days prior written notice of that change of address.
G. TRIAL BY JURY. BORROWER AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN
DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION
THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND
VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.
LENDER IS AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS
CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.
H. HEADINGS. The paragraph and subparagraph headings and the Table of
Contents in this Agreement are included in this Agreement for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
I. SEVERABILITY. Wherever possible, each provision of this Agreement shall
be interpreted in that manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, that provision shall be ineffective to the extent of that
prohibition or invalidity, without invalidating the remainder of that provision
or the remaining provisions of this Agreement.
J. PREFERENCES. Lender shall have the continuing and exclusive right to
apply or reverse and reapply any and all payments by Borrower to any portion of
the obligations of Borrower hereunder. To the extent Borrower makes a payment or
payments to Lender, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of that payment or proceeds received, the obligations hereunder or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if that payment or proceeds had not been received by
Lender.
K. WAIVER OF NOTICE. Borrower shall not be entitled to any notices of any
nature whatsoever from Lender except with respect to matters for which this
Agreement or the other Loan Documents specifically and expressly provide for the
giving of notice by Lender to Borrower and except with respect to matters for
which Borrower is not, pursuant to applicable Legal Requirements, permitted to
waive the
56
<PAGE> 61
giving of notice. Borrower expressly waives the right to receive any notice from
Lender with respect to any matter for which this Agreement or the other Loan
Documents do not specifically and expressly provide for the giving of notice by
Lender to Borrower.
L. REMEDIES OF BORROWER. In the event that a claim or adjudication is made
that Lender or its agents have acted unreasonably or unreasonably delayed acting
in any case where by law or under this Agreement or the other Loan Documents,
Lender or that agent, as the case may be, has an obligation to act reasonably or
promptly, Borrower agrees that neither Lender nor its agents shall be liable for
any monetary damages, and Borrower's sole remedies shall be limited to
commencing an action seeking injunctive relief or declaratory judgment. The
parties hereto agree that any action or proceeding to determine whether Lender
has acted reasonably shall be determined by an action seeking declaratory
judgment.
M. EXPENSES; INDEMNITY. Borrower shall pay Lender, upon receipt of written
notice from Lender, all reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements and the costs and
expenses of any title insurance company, appraisers, engineers or surveyors)
incurred by Lender in connection with: (i) the preparation, negotiation,
execution and delivery of this Agreement, the Mortgages and the other Loan
Documents; (ii) Borrower's performance of and compliance with Borrower's
respective agreements and covenants contained in this Agreement, the Mortgages
and the other Loan Documents on its part to be performed or complied with after
the date of this Agreement; (iii) Lender's performance and compliance with all
agreements and conditions contained in this Agreement, the Mortgages and the
other Loan Documents on its part to be performed or complied with after the date
of this Agreement; (iv) the negotiation, preparation, execution, delivery and
administration of any consents, amendments, waivers or other modifications to
this Agreement, the Mortgages and the other Loan Documents; and (v) the filing
and recording fees and expenses, title insurance fees and expenses, and other
similar expenses incurred in creating and perfecting the lien in favor of Lender
pursuant to this Agreement, the Mortgages and the other Loan Documents. Borrower
shall indemnify, defend and hold harmless Lender from and against any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel for Lender in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not Lender shall be
designated a party thereto), that may be imposed on, incurred by, or asserted
against Lender in any manner relating to or arising out of (i) any breach by
Borrower of its obligations under, or any material misrepresentation by Borrower
contained in, this Agreement or the other Loan Documents, or (ii) the use or
intended use of the proceeds of the Loan (collectively, the "INDEMNIFIED
LIABILITIES"); provided, however:
(1) Borrower shall not have any obligation to Lender hereunder to the
extent that those Indemnified Liabilities arise from the gross
negligence, illegal acts, fraud or willful misconduct of Lender. To the
extent that the undertaking to indemnify, defend and hold harmless set
forth in the preceding sentence may be unenforceable because it
violates any law or public policy, Borrower shall pay the maximum
portion that it is permitted to pay and satisfy under applicable law to
the payment and satisfaction of all Indemnified Liabilities incurred by
the Lender.
(2) Neither Borrower nor Guarantor shall be liable for Indemnification
under or pursuant to Paragraphs 24-29 of the Mortgages or under the
this Paragraph 17.M with respect to the Indemnified Liabilities that
correspond to the indemnities otherwise required by Borrower under
Paragraphs 24-29 of the Mortgages, in each case limited to the extent
that the cause of liability, obligation, claim, demand, damage,
penalty, cause of action, loss, fine, cost or expense (collectively a
"CLAIM") with respect to an Individual Property shall be solely due to
an action taken or not taken by Lender or its agents or assigns
regarding a Hazardous Substance that first occurs on and from that
Individual Property (as its so-called "point source") after that date
when Lender (or its successor or assign) shall finally obtain full,
complete, unconditional and uncontested possession and ownership of
that Individual Property through foreclosure (or through a transaction
in lieu of foreclosure), Borrower and Guarantor shall have acknowledged
in a writing acceptable to Lender that they have no claims of any
nature or defenses against Lender (or its successors,
57
<PAGE> 62
assigns, employees and/or agents) and shall have released in a writing
acceptable to Lender any such claims or defenses that they may claim to
have, Lender shall have received all sums due it hereunder at that time
and, with respect to all other Claims Borrower and Guarantor shall have
acknowledged in a writing satisfactory to Lender that their respective
obligations hereunder shall continue and survive unabated in accordance
with their respective terms and conditions.
N. EXHIBITS AND SCHEDULES INCORPORATED. The Exhibits and Schedules annexed
to this Agreement are incorporated in this Agreement as a part of this Agreement
with the same effect as if set forth in the body hereof.
O. OFFSETS, COUNTERCLAIMS AND DEFENSES. Any assignee of Lender's interest in
and to this Agreement, the Note and the other Loan Documents shall take the same
free and clear of all offsets, counterclaims or defenses which are unrelated to
those documents which Borrower may otherwise have against any assignor of those
documents, and no such unrelated counterclaim or defense shall be interposed or
asserted by Borrower in any action or proceeding brought by any such assignee
upon those documents and any such right to interpose or assert any such
unrelated offset, counterclaim or defense in any such action or proceeding is
expressly waived by Borrower.
P. NO JOINT VENTURE OR PARTNERSHIP; NO THIRD PARTY BENEFICIARIES. Borrower
and Lender intend that the relationships created hereunder and under the other
Loan Documents be solely that of borrower and lender. Nothing herein or therein
is intended to create a joint venture, partnership, tenancy-in-common, or joint
tenancy relationship between Borrower and Lender nor to grant Lender any
interest in the Properties other than that of Lender or lender. This Agreement
and the other Loan Documents are solely for the benefit of Lender and Borrower
and nothing contained in this Agreement or the other Loan Documents shall be
deemed to confer upon anyone other than the Lender and Borrower any right to
insist upon or to enforce the performance or observance of any of the
obligations contained herein or therein. All conditions to the obligations of
Lender to make the Loan hereunder are imposed solely and exclusively for the
benefit of Lender and no other Person shall have standing to require
satisfaction of those conditions in accordance with their terms or be entitled
to assume that Lender will refuse to make the Loan in the absence of strict
compliance with any or all thereof and no other Person shall under any
circumstances be deemed to be a beneficiary of those conditions, any or all of
which may be freely waived in whole or in part by Lender if, in Lender's sole
discretion, Lender deems it advisable or desirable to do so.
Q. PUBLICITY. All news releases, publicity or advertising by Borrower or
their Affiliates through any media intended to reach the general public which
refers to the Loan Documents or the financing evidenced by the Loan Documents,
to the Lender, Bloomfield, or any of their Affiliates shall be subject to the
prior written approval of Lender.
R. CROSS-DEFAULT; CROSS-COLLATERALIZATION; WAIVER OF MARSHALLING OF ASSETS.
Lender has made the Loan to Borrower upon the security of its collective
interest in the Properties and in reliance upon the aggregate of the Properties
taken together being of greater value as collateral security than the sum of the
Properties taken separately. The Mortgages are and will be cross-collateralized
and cross-defaulted with each other so that (i) an Event of Default under any of
the Mortgages shall constitute an Event of Default under each of the other
Mortgages which secure the Note; (ii) an Event of Default under the Note or this
Loan Agreement shall constitute an Event of Default under each Mortgage; and
(iii) each Mortgage shall constitute security for the Note as if a single
blanket lien were placed on all of the Properties as security for the Note. To
the fullest extent permitted by law, Borrower, for itself and its successors and
assigns, waives all rights to a marshalling of the assets of Borrower,
Borrower's partners and others with interests in Borrower, and of the
Properties, or to a sale in inverse order of alienation in the event of
foreclosure of all or any of the Mortgages, and agrees not to assert any right
under any laws pertaining to the marshalling of assets, the sale in inverse
order of alienation, homestead exemption, the administration of estates of
decedents, or any other matters whatsoever to defeat, reduce or affect the right
of Lender under the Loan Documents to a sale of the Properties for the
collection of the Debt without any prior or different resort for collection or
of the right of Lender to the payment of the Debt out of the net proceeds of the
Properties in preference to every other claimant whatsoever. In addition,
Borrower, for itself and its successors and assigns, waives in the event of
foreclosure of any or all of the Mortgages,
58
<PAGE> 63
any equitable right otherwise available to Borrower which would require the
separate sale of the Properties or require Lender to exhaust its remedies
against any Individual Property or any combination of the Properties before
proceeding against any other Individual Property or combination of Properties;
and further in the event of that foreclosure Borrower expressly consents to and
authorizes, at the option of the Lender, the foreclosure and sale either
separately or together of any combination of the Properties.
S. WAIVER OF COUNTERCLAIM. Borrower waives the right to assert a
counterclaim, other than a compulsory counterclaim, in any action or proceeding
brought against it by Lender or its agents.
T. CONFLICT; CONSTRUCTION OF DOCUMENTS; RELIANCE. In the event of any
conflict between the provisions of this Loan Agreement and any of the other Loan
Documents, the provisions of this Loan Agreement shall control. The parties
hereto acknowledge that they were represented by competent counsel in connection
with the negotiation, drafting and execution of the Loan Documents and that
those Loan Documents shall not be subject to the principle of construing their
meaning against the party which drafted same. Borrower acknowledges that, with
respect to the Loan, Borrower shall rely solely on its own judgment and advisors
in entering into the Loan without relying in any manner on any statements,
representations or recommendations of Lender or any parent, subsidiary or
Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in
the exercise of any rights or remedies available to it under any of the Loan
Documents or any other agreements or instruments which govern the Loan by virtue
of the ownership by it or any parent, subsidiary or Affiliate of Lender of any
equity interest any of them may acquire in Borrower, and Borrower irrevocably
waives the right to raise any defense or take any action on the basis of the
foregoing with respect to Lender's exercise of any such rights or remedies.
Borrower acknowledges that Lender engages in the business of real estate
financings and other real estate transactions and investments which may be
viewed as adverse to or competitive with the business of Borrower or its
Affiliates.
U. BROKERS AND FINANCIAL ADVISORS. Borrower represents that it has dealt
with no financial advisors, brokers, underwriters, placement agents, agents or
finders in connection with the transactions contemplated by this Agreement.
Borrower and Lender agree to indemnify and hold the other harmless from and
against any and all claims, liabilities, costs and expenses of any kind in any
way relating to or arising from a claim by any Person that such Person acted on
behalf of the indemnifying party in connection with the transactions
contemplated in this Agreement. The provisions of this Paragraph 17.U shall
survive the expiration and termination of this Agreement and the payment of the
Debt.
V. PRIOR AGREEMENTS. This Agreement and the other Loan Documents contain the
entire agreement of the parties hereto and thereto in respect of the
transactions contemplated hereby and thereby, and all prior agreements among or
between those parties, whether oral or written, including, without limitation,
the Commitment Letter between Borrower and Lender are superseded by the terms of
this Agreement and the other Loan Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Master Loan
Agreement to be duly executed by their duly authorized representatives, all as
of the day and year first above written.
MALAN MIDWEST, L.L.C., a
Michigan limited liability
company, by its Managing
Member, Malan Midwest One
Corp., a Michigan corporation
By:____________________________________
Name: Michael K. Kaline
Title: Vice President
BLOOMFIELD ACCEPTANCE COMPANY, L.L.C.,
a Michigan limited liability company
By:____________________________________
Name: Daniel E. Bober
Title: President
59
<PAGE> 1
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
33-48937 of Malan Realty Investors, Inc. on Form S-2 of our report dated
January 30, 1998, included in the Annual Report on Form 10-K of Malan Realty
Investors, Inc. for the year ended December 31, 1997, and to the use of our
report dated January 30, 1998, appearing in the Prospectus, which is part of
this Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Detroit, Michigan
May 29, 1998
<PAGE> 1
EXHIBIT 23(c)
Consent of Independent Auditors
We consent to the use in this Registration Statement of Malan Realty Investors,
Inc. on Form S2 of our report on the combined statement of revenues and certain
expenses of the Midwest Shopping Center Retail Portfolio dated May 15, 1998,
appearing in the Prospectus, which is part of this Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ KATZ, SAPPER & MILLER, LLP
Certified Public Accountants
Indianapolis, Indiana
May 29, 1998
